WIREDGOV

The Department for Business, Energy & Industrial Strategy (BEIS) worked quickly to introduce financial support for rising energy bills (currently estimated at £69bn), recognising it had to make compromises to do so such as support going to households that did not need it, a National Audit Office report has found.

The factual briefing is designed to support early Parliamentary scrutiny of how BEIS designed and implemented energy bills support schemes, including their potential costs. In Autumn 2022 the government outlined support for households and businesses, responding to surging energy prices, which were exacerbated by the Russian invasion of Ukraine. These include:

• The Energy Price Guarantee (EPG), which caps the average domestic energy bill at £2,500 from October 2022 until March 2023, and £3,000 from April 2023 until April 2024.
• The Energy Bill Relief Scheme (EBRS), which provides equivalent support to the EPG for non-domestic organisations, including businesses, voluntary and public sector organisations, from October 2022 to March 2023.
• The Alternative Fuel Payment, a £200 one-off payment to households unconnected to the gas grid and so use alternative fuels, such as oil or liquid gas.
• The Non-Domestic Alternative Fuel Payment will provide comparable support to the EBRS for non-domestic consumers off the gas grid, who use alternative fuels such as heating oil. This will comprise a one-off payment of £150. Consumers with the highest use of heating oil (kerosene) will receive an additional ‘top up’ payment’.
• The Energy Bills Support Scheme (EBSS), which provides a £400 grant for domestic billpayers in six monthly instalments from October 2022. The Alternative Funding Scheme provides an equivalent grant for households without domestic supplier contracts.

In common with COVID-19 support schemes, energy bills support was designed to be applied universally and at speed. BEIS acknowledged that this creates value for money risks by providing support to homes and businesses that do not necessarily need it. The government has announced that it will reduce support for non-domestic organisations from April 2023, but that energy and trade intensive sectors will receive a higher level of support than other sectors.

BEIS’s Accounting Officer sought ministerial directions (see Notes for Editors) for the energy price guarantee scheme and the energy bill relief scheme for reasons of feasibility, propriety and value for money.

Key findings

• The estimated combined cost of all energy support schemes is £69bn.
• BEIS had approximately three weeks from the then Prime Minister announcing the household scheme on 8 September before becoming operational on 1 October 2022, and less than two months to implement the business-facing support on 1 November.
• The schemes provide near universal support to homes and businesses, which meant they could be implemented quickly. Yet this created value-for-money risks because it meant supporting some people and firms that did not require assistance – this is known as ‘deadweight’. The BEIS Accounting Officer (Permanent Secretary) sought and received ministerial directions, as she could not provide assurance spending rules were met.
• Support schemes took longer to implement in Northern Ireland owing to different operating conditions.

Future risks to be managed

• Risks of overpayments are greater with support to businesses compared with households.
• Fraud and error risks are also higher in Northern Ireland as suppliers are subject to different regulatory oversight compared with Great Britain.
• BEIS is seeking to manage risks around further supplier insolvencies.
• Targeting future support, whether at firms or households, will reduce value of money risks but will present a fresh challenge for BEIS in verifying claims and identifying potential fraud. BEIS will need to consider the likely losses to fraud and error, alongside the improvements in value for money from reduced deadweight, that could result from increased targeting.

“Similar to the government’s assistance during COVID, the energy bills support schemes were introduced universally, and at speed, to reduce the impact of soaring energy costs for people and businesses.
“This approach led to compromises – introducing these interventions at speed meant that BEIS has less time to consider fraud and error risks; and their universal nature meant that a significant number of households received financial support they did not need’.
“As the government seeks to target future assistance, it must be mindful of the risk of introducing complexity which could aid fraudsters. The National Audit Office will continue to monitor these schemes to understand their impact, particularly the costs and benefits of universal versus targeted support.”

Gareth Davies, the head of the NAO: 

Full report

Energy bills support schemes

Notes for editors

1. This is a not a value for money report, but a briefing designed to enable early Parliamentary scrutiny of the energy support schemes.
2. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
3. Read more about ministerial directions here.