Can Energy Customers Afford to Pay?

For the past 2 years, many people’s financial resilience has been tested. A combination of reduced income, low savings and indebtedness have led many people to a position of financial vulnerability. Now we face a significant hike in fuel and energy bills which will tip more people into the red. What can be done to help prevent debt from spiralling?

What is Financial Resilience?

Financial resilience is ‘the ability to withstand life events that impact one's income and/or assets’. With the cost of living increases far exceeding pay rises, it has become more challenging to remain financially resilient.

In 2021, the FCA reported that the number of people in a position of financial vulnerability increased from 10.7million to 14.2million during 2020. All expectations are another significant increase for those without the financial means to pay for essentials in 2022.

Money Management

Most people have to make choices to manage their money. You might forfeit a few nights out to save for a holiday or decide not to splash out on a new purchase in the same month as you need to kit the children out with uniforms and school shoes.

The majority of people also have some access to money to pay for an unexpected bill – an issue with the car or replacing a washing machine. This could be in the form of savings, a credit card or a short-term loan.

For those of us in this situation, the escalating fuel and energy costs are a concern. When coupled with increasing food costs and a higher Council Tax bill, it might be time to review the finances. What can be juggled to make sure everything is paid?

There are, however, a growing number of people who know that these increases will take them over the edge. They’ve been struggling to balance income and expenditure for years and there is no scope to pay more. The decisions they are making are whether to eat or heat their home.

The change is being felt across all support organisations. In March, Martin Lewis donated ￡50,000 to The Money Buddies. The organisation had revealed that demand for their services had doubled in a month and they were struggling to deal with the volume of enquiries. The donation was provided to help them increase staffing, so more families could be supported.

What is the Impact of Energy Poverty?

In a recent podcast with Matt Cole of the Fuel Bank Foundation, he spoke of people not being able to shower or wash their clothes before going to work, families not being able to make hot meals and children not being able to do homework online.

We shared stories of individuals spending the day in shopping centres or the pub to keep warm and maybe access free WiFi. He knows of people limiting when the heating is on and considering how many times they boil the kettle, or flush the toilet, to keep expenses down.

Matt also revealed that the profile of people facing energy poverty was changing. The Fuel Bank Foundation is speaking with more working families; people who have never been financially vulnerable before. He reported a 75% year-on-year increase in demand for the organisation’s services. All this before energy bills went up on 1 April.

What can Energy Suppliers do to Help the Financially Vulnerable?

Matt’s research revealed a telling piece of insight. Only 9% of customers struggling to pay their energy bills contacted their energy provider. They did not see this as a viable course of action.

The majority of energy suppliers do have measures in place to help reduce or spread the costs, but it relies on customers getting in touch and admitting they are struggling financially. It’s important for energy companies to become more proactive in contacting customers and having conversations.

It must be recognised that admitting to money problems can be incredibly difficult; associated with feelings of embarrassment, failure or frustration. As a result, people do not readily share the fact that they can’t pay. Those making the call or reviewing customer data need to be vigilant about changes in behaviours or words that suggest things are tight. They need to volunteer information about support services and signpost to other resources, rather than waiting for it to be requested.

Matt also invited energy companies to talk with the Fuel Bank Foundation team. They are in contact with people who have current lived experiences of a financial crisis. They can use this insight to help energy suppliers plan strategies and provisions that could make a difference.

So, we can’t stop price increases or provide people with free energy. What we can do is:

• Ensure people are on the right tariff
• Be proactive in contacting and speaking with customers
• Give energy saving advice
• Provide flexible options to help them pay and direct them to debt services that can aid money management.

These actions can prevent a difficult situation from spiralling into a crisis. They can help families to cope.

Further Reading:

https://www.stepchange.org/policy-and-research/held-back-by-debt-financial-resilience-in-britain.aspx

https://www.aol.co.uk/money/consumer-credit-borrowing-grows-fastest-100046364.html