Customers landed with £30-a-month price hike when energy companies go bust

• Citizens Advice warns people will face 'desperate choices' this winter without targeted support

People moved to a new energy company because their supplier has gone bust stand to pay £6.70 more every week (nearly £30-a-month) for their energy, according to new research by Citizens Advice. 

The charity analysed deals offered by the five largest failed suppliers to date, against the price increase customers typically experience when moved onto a default tariff at another supplier. With a squeeze on family finances underway, it is calling for urgent targeted support to avert a ‘cost of living crisis’ this winter.

The energy price cap is due to rise by £139 for people on default tariffs and £153 for people on prepayment meters tomorrow (1 October). As of Tuesday 28 September, more than 1.5 million people had been affected by energy supplier failures.

People on low incomes will be hit the hardest

Citizens Advice is particularly concerned about people on the lowest incomes who could be hit by a triple whammy of financial hardship: rising energy costs, a planned cut of £20-a-week to their Universal Credit, and a higher cost of living due to inflation. 

As the energy watchdog, Citizens Advice has raised concerns that the 1.1 million low income households in receipt of the Warm Home Discount would lose out. Its analysis shows that including the increased cost of living with inflation, they stand to lose £17.40 a week if the Warm Home Discount is not carried over when they’re moved to a new supplier.

People in this situation, who are also on Universal Credit, stand to lose £37.40 a week if the planned cut is implemented.

Frontline advisers at the charity say they fear many will be left facing 'desperate choices' due to fuel poverty this winter, including turning off their fridges and freezers, relying on hot water bottles for warmth and requesting support to buy extra duvets and blankets.

‘I’m terrified thinking about how I'm going to cope this winter’

Shaun is a single dad from Northumberland and has a son in primary school. He previously worked as a fisher but has had to take time off due to health issues. While his supplier has not gone under, he’s worried about how he’ll pay his bills this winter.

“I’m terrified thinking about how I'm going to cope this winter. If my Universal Credit is cut and bills go up, I just won't have the extra to pay for any increase on my gas and electric.

“It’s starting to get colder and I'll need the heating on for my son. I'll just have to wrap up when he’s at school, so I can put it on when he gets home. Even then I’ll only be able to have it on for a couple of hours, not the whole evening.”

Higher bills are weighing on people’s minds

Citizens Advice polling found that more than a third (35%) of people are worried they’ll struggle to pay their energy bills this winter. This rises to almost half (45%) of people earning less than £21,000 per year, and households with children (44%). 

As the cost of living crisis begins to bite, Citizens Advice is calling on the government to reverse its planned cut to Universal Credit and introduce emergency winter grants for those on the lowest incomes. These could be delivered through local authorities in the same way covid winter grants were last year. 

Dame Clare Moriarty, Chief Executive of Citizens Advice, said:

“Overnight price hikes will be a shock for more than a million households whose energy companies have gone bust. 

"We’re particularly worried about those who’ll face desperate choices this winter because of the cumulative impact of soaring bills, the planned cut to Universal Credit and inflation.

“The government and Ofgem must guarantee that the Warm Home Discount will be continued for people moving to new energy suppliers. People on the lowest incomes should be able to access emergency winter grants so they can stay warm in the cold months ahead.”

Notes to editors

1. The calculation for existing deals of failed suppliers is based on analysis of Citizens Advice’s dataset on tariffs in the energy market, looking at the average price of the cheapest 12 month fixed deals offered on 1st March 2021 by the five largest suppliers that had failed by 23rd September (Avro, Green, People’s Energy, PFP, UtilityPoint). Two suppliers (Hub and MoneyPlus) have not been included in this analysis as their customer numbers were significantly fewer. March 2021 was selected as the median start date for customers on 12 month fixed deals at the point the companies failed, assuming acquisition of customers was distributed equally across the year. The price cap comparison is for the price cap set by Ofgem from October 2021 (£1,277). Customers who have moved suppliers as part of the Supplier of Last Resort (SoLR) process have generally been placed on the incoming supplier’s Standard Variable Tariff, which will rise when the new price cap is in place on 1st October 2021. All prices are based on average household usage, and direct debit payments.

2. People moved to a new energy company because their supplier has gone bust stand to pay £6.70 more every week, £28.80 a month and £348.40 a year more for their energy.

3. Cost of living figures were calculated using the latest ONS Family Spending publication on expenditure by decile group (table A4), taking weekly average expenditure for households in the third decile group. Then using above weekly expenditure for households and adding "a conservative 2% increase" in inflation for FY so far (August 21 CPI figure) gives us ~£8 increase (363.2 * 0.021 or 0.022 = 7.63 or 7.99). Methodology developed by Joseph Rowntree Foundation

4. We have calculated the weekly loss of Warm Home Discount by dividing the value (£140) by 52 weeks = £2.70 per week

5. Polling was undertaken over the weekend of 25-26 September 2021, using a nationally representative poll of 2,000 adults across the UK, through Yonder Data Solutions.

6. Citizens Advice is calling for the government to put into place emergency funding to support people struggling with higher energy bills this winter as a result of supplier failures. This could be delivered in a number of ways including through the benefits system and would need to comprise of at least £220 million in support (reflecting the value of the Covid Winter Grant scheme, which sat alongside other support like the £20-a-week increase to Universal Credit, and the furlough scheme which will be withdrawn this month).

7. The Warm Home Discount provides support of £140 per year to people on the lowest incomes - including pensioners on income support and people receiving benefits. The government has not guaranteed that those eligible for the grant will have it carried over to their new supplier when they fail.

8. In 2019/20, the Warm Home Discount provided help to more than 2.2million households on low incomes in Great Britain, including pensioners and people in vulnerable situations. This includes 1.1 million lower income pensioners (known as the Core Group) and an additional 1.1m working age people on low incomes (including people on Universal Credit) or in vulnerable situations (the Broader Group). Following some previous supplier failures, new energy suppliers have voluntarily provided Core Group recipients of the failed supplier with rebates, whereas Broader Group rebates have not been protected.

9. Citizens Advice warned last week that 1.5 million working people on Universal Credit could be pushed into hardship this winter if their benefits are cut by £20-a-week

10. Citizens Advice includes the national charity; the network of independent local Citizens Advice charities across England and Wales; the Citizens Advice consumer service; and the Witness Service.

11. Citizens Advice is the statutory consumer advocate for energy and post. We provide supplier performance information to consumers and policy analysis to decision makers.

12. The Citizens Advice Witness Service provides free, independent support for prosecution and defence witnesses in every criminal court in England and Wales.

13. Citizens Advice offers Pension Wise services at 500 locations in England and Wales.

14. Citizens Advice’s services are free, independent, confidential and impartial, and available to all regardless of race, gender, disability, sexual orientation, religion, age or nationality.

15. To get advice online or find your local Citizens Advice, visit citizensadvice.org.uk

16. For consumer advice, call the Citizens Advice consumer service on 0808 223 1133 or 0808 223 1144 to talk in Welsh.

17. We helped 2.6 million people face to face, by phone, email and webchat in 2017-18. For service statistics see our monthly publication Advice trends.

18. Citizens Advice staff are supported by over 23,000 trained volunteers, working at over 2,500 locations in England and Wales.