The poverty premium in energy exists when people in poverty pay more for their energy. This is due to a range of factors including how people pay for their energy and, in normal times for the energy market, whether they can switch to a better deal.  

Campaigns

Fair By Design is calling for the equalisation of payment methods so people don’t have to spend more on energy bills. We are calling for the introduction of a social tariff and have been-long term supporters of the Government’s Warm Home Discount Scheme. 

Social Tariff

A social tariff is a targeted discount energy tariff for qualifying low-income consumers. It would mean that customers on low incomes pay a lower price for their energy. It is designed to make sure those in greatest need can access energy during the toughest economic moments.  

In January 2023, along with National Energy Action (NEA), Age UK, Scope and Energy Action Scotland, we wrote to the Chancellor Jeremy Hunt MP calling for the introduction of a social tariff in the energy market. The letter received significant press coverage in The Independent, Evening Standard, The Mirror and other outlets. 

Read our report on social tariff, which we published with National Energy Action (NEA), in July 2022.  

Check out the campaign’s media coverage to date 

Warm Home Discount (WHD)

The WHD is a one-off payment to help with the cost of energy during the winter. It is targeted at low-income and vulnerable households to help them afford their energy bills. This winter (2022-23), it was set at £150. 

You can read our joint report with National Energy Action (February 2020), on the WHD here.  

We have responded to several Government consultations on the WHD including the most recent in April 2022: Warm Home Discount: Better targeted support from 2022 consultation. You can read the full response here. 

Further information: Types of poverty premium in the energy market 

Prepayment meters   

In March 2023, after consistent pressure from Fair By Design and others, the Government announced it would bring prepayment meter energy charges in line with customers who pay by direct debit from July 1st 2023. This will, in effect, abolish the poverty premium for those using prepayment meters, which is £45 extra compared to those who pay via direct debit.  

The Government has said it will work with Ofgem on their ongoing review of prepayment meter costs and is asking the regulator to report by autumn this year on how the prepayment meter premium can be abolished permanently, after the Energy Price Guarantee comes to an end in April 2024.   

Standard Credit (payment on receipt of bill) 

Consumers who pay on receipt of a bill (also known as standard credit) pay £202 more than paying via direct debit, under the Ofgem default price cap. In addition to this, paying on receipt of bill does not allow consumers to smooth their energy payments over the course of a year, which happens when paying via direct debit. This means that when it gets to the colder months, energy bills can often become too expensive. We will be responding to Ofgem’s call for evidence on the levelisation of payment method cost differentials as part of our work on standard credit. 

Switching premium 

Currently there is no poverty premium for not being on the best fuel tariff. The rise in all energy bills by over 50% to the top rate of the Ofgem price cap in 2022 means that, in the current energy market, there is little to gain financially from switching to the best tariff. Despite this, the actual cost of energy to customers has risen dramatically even though the poverty premium has been reduced. In anticipation of switching premiums returning once the energy market returns to pre-energy crisis conditions, we are campaigning for a social tariff for low-income energy customers.