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Energy firms to be forced to help the poor

Energy suppliers will be forced to help poor people struggling to pay their fuel bills for the first time under new proposals to be announced this week, The Independent has learnt.

At present the Big Six suppliers subsidise bills of the poor and elderly paying a high proportion of their income on gas and electricity under a system of voluntary ‘social tariffs’.

In a new Energy Bill in the Queen’s Speech on Wednesday, central Government will enshrine the scheme in law and set how much suppliers have to spend on social support.

The Bill will also hand greater powers to intervene in the energy market against companies that fail to act in consumers’ interests.

Ministers hope the new legislation will increase the amount of social support as bills rise over the next 10 years to fund Britain’s transition to a low-carbon economy.

All energy suppliers will be required to contribute proportionately the same amount to social tariffs amid signs that some have been less generous than others.

In a report last year, the now disbanded Energywatch consumer group found that British Gas, Npower, E.ON, Scottish and Southern, Scottish Power and EDF spent only £28m a year on ‘social tariffs’, one thousandth of their £24bn annual turnover.

British Gas was the most generous, contributing 1.74 per cent of its turnover on social tariffs compared with the foreign-owned Npower and Scottish Power, who respectively gave 0.04 per cent and 0.1 per cent.

A Government source said the new system would come into effect once the voluntary agreement ended in 2011.

"The principle is that with upward pressure on prices the vulnerable need help,” a Government source said.

The Bill will strengthen Ofgem’s power to act on behalf of consumers. The regulator has been criticised for being too lenient on suppliers, though its stance has toughened in the past 18 months. In August Ofgem’s chief executive Alistair Buchanan wrote to the chief executives of the Big Six asking them to outline when they would pass on falls in wholesale costs.

Suppliers raised power prices by about 42 per cent last year, or about £382 per household, but have lowered them by only 4 per cent to an average of £1,141 this year. Over the same period wholesale costs have halved.

Suppliers say they are locked into long-term contracts at higher prices and have been hit by higher bad debts and environmental charges.

A Government source said the new legislation would allow Ofgem to respond more aggressively to competitive failings.

"It's about making sure that we have a speedy response to problems,” the source said.

“Sometimes Ofgem's tendancy has been to say: 'This is not working properly, there are barriers to competition and things will sort themselves out when we remove those barriers.' We now know that the present pressures on consumers are too great to leave that to take its course.”

The source added: “You may well see more active intervention – modifications to licences or crackdowns on breaches of licence conditions."