Rocio Concha is Director of Policy and Advocacy at Which?
The soaring cost of living is front and centre in so many minds at the moment. Prices are rising in virtually every area, from supermarket checkouts to petrol forecourts and household bills. The question of how to provide solutions to the cost of living crisis, and to help those most in need of support, at a time when the public finances are stretched, is a challenge preoccupying policy experts everywhere.
At Which?, we’re no different. Every day, we’re hearing from consumers struggling to make ends meet. Our recent research found that nearly six in 10 households are making adjustments such as cutting back or dipping into savings to cover essential spending, while an estimated two million households have missed a housing, bill, credit card or loan payment in the last month.
The concern goes beyond the financial. A sense of despair, stress and suffering – emotional and physical – comes through in our research. One respondent, who earns just over the Universal Credit (UC) threshold, wrote of ‘losing sleep and having to go without more’ amid soaring costs. She, like others, has either drastically reduced her heating usage – or is simply not turning it on.
With the energy price cap expected to increase to around £2,800 in October, the Chancellor’s recently announced measures to provide financial support for households, with further, targeted support for those most in need were very welcome. However, there are also groups of consumers who have traditionally been able to manage that are now also feeling the squeeze. The challenge for the government is how it can deepen and widen its assistance to ensure more households aren’t falling into further financial hardship.
Which? has identified five areas where the government can act quickly, at little cost to the public purse in some cases, and can work with businesses to help millions of consumers. None of these proposals is intended to be a silver bullet: the cost of living crisis is being driven in large part by external factors beyond the government’s control. However, if implemented they could help to mitigate the impacts.
The first is to reduce the amount of VAT paid on telecoms from twenty per cent to five per cent. Connectivity is an essential part of our daily lives, but that isn’t reflected in how these services are taxed. By contrast to other essential services, VAT on energy is charged at five per cent, with water and wastewater services zero rated. We estimate that a reduction in VAT could save those on a standard broadband tariff up to £57 a year, and those on a social tariff up to £37.50 a year.
The second is to ensure that people don’t face unfair exit fees when switching to cheaper deals, particularly in the energy market, where exit fees on fixed tariffs have soared in recent months. This could leave people who have sought the security of fixed tariffs facing a bill of up to £600 if they find themselves in a tight spot and need to switch to a cheaper deal.
While exit fees can be important in terms of helping providers recoup their upfront costs of delivering a service, now more than ever they must remain fair. When energy suppliers are to be compensated for losing customers on more expensive deals through the market stabilisation charge, how can charging consumers so much be justified? The regulator should investigate to ensure businesses are not taking advantage of consumers.
Third, use government data to ensure support is reaching those who need it. Initiatives such as the Warm Home Discount, and the Cold Weather Payment are lifelines to customers without sufficient disposable income to be resilient to sudden change. However, the process to access such discounts remains largely manual and can be cumbersome, with unnecessary barriers to overcome.
Speed and ease of access to discounted services are critical but there could well be millions of people eligible for discount schemes who are unaware of that fact. Ofcom data, for instance, suggests just 1.2 per cent of UC claimants have taken up broadband social tariffs. A proactive government approach, led by data, that harnesses data to speed up access and makes it easier to prove eligibility for these schemes and which also reaches out to households at risk could make a huge difference.
Fourth, support consumers dealing with a rapid increase in household food insecurity. Any consumer, whatever their income, will have noticed that the price of groceries at the supermarket has gone up. The result, as recent Which? research found, has led to just over one in 10 skipping meals. Many have told us that they are now having to resort to food banks. The decision to therefore water down, ignore or put off for further consultation many of the recommendations made in Henry Dimbleby’s National Food Strategy to support people who are struggling the most, such as extending the eligibility for free school meals, and expanding the Healthy Start Scheme, is very disappointing and lacks the ambition required to tackle this serious issue.
Fifth, and finally, intervene to help ‘mortgage prisoners’, who have been trapped paying excessively high interest rates after their mortgages were sold to inactive lenders and affordability criteria changed. As of June last year, the Financial Conduct Authority estimated that there were 195,000 mortgages in the population of closed books with inactive firms. As the Bank of England puts up interest rates, these people will be delivering a windfall to the investment firms that bought those mortgage books.
The cost of living crisis is having an immediate and significant impact on UK households, causing real suffering. The Prime Minister announced in the wake of this week’s confidence vote that he was focused on this issue. While action to date has been welcome, the five proposals set out here are designed to provide immediate relief with long term stability to consumers accessing services that are life essentials. We call on ministers to consider these simple and practical solutions that will make a difference.