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Citizens Advice has called on the government to introduce a social tariff for energy that would see low-income households receive cash payments of up to £1,500.
The call is backed by a coalition of consumer groups and energy bodies, including Martin Lewis and Energy UK.
Citizens Advice said that targeted financial support in the form of a social tariff is the long-term solution to millions of people spending excessive amounts on their bills, both now and during what could be a decade of record prices.
It wants to identify those most in need by combining HMRC data on household incomes and data from energy suppliers on how much electricity and gas they use.
Based on analysis in the report, more than 12 million households on the lowest incomes would qualify for support, and the average qualifying household would see their energy bill reduced by £381 – with some getting up to £1,500.
The call for a social tariff follows nine months of extensive consultation with industry leaders, civil society and the public.
The government’s Energy Price Guarantee is officially set to rise to £3,000 from April which will put even greater stress on the most vulnerable households.
However, Citizens Advice said it is “widely expected” that the cap will remain at £2,500 for a further three months, which the Chancellor will announce in the upcoming budget.
Even under this scenario, ten million households will face crisis-level energy costs, with more than 10 per cent of their income after housing costs going on energy, which is a key indicator of fuel poverty. If the EPG increases to £3,000 as currently planned, the number of households affected in this way rises to 12 million.
People on the lowest incomes will be hit much harder, with energy making up more than half of their total household income after housing costs in either scenario – up from 34 per cent in 2019.
Citizens Advice said it had helped 50 per cent more people with energy issues in 2022 than the year before, and more than double that of 2020.
Citizens Advice also called for a national programme of loft and cavity wall insulation for households in fuel poverty.
UK homes use more gas than most other Western European countries and are particularly exposed to any hikes in wholesale prices. A national insulation programme will help keep houses warmer, reduce gas usage and insulate people against price spikes, it said.
At a total cost of £1.1bn, this would save more than a million households up to £561 a year.
Dame Clare Moriarty, chief executive of Citizens Advice, said: “Energy affordability is a long-term problem that needs a long-term solution. A social tariff protects millions of people from spending excessive amounts on their bills.
“High energy costs have left too many people choosing between heating and eating. Uncertainty over future high prices only adds to the stress and worry felt in households across the country.
“This policy helps make energy bills more affordable in the years ahead and supports the shift to warmer, safer homes that are ready for the net-zero transition.”
Martin Lewis, Money Saving Expert, said: “I’ve argued for a social tariff for years, and now it could be a crucial building block to help repair our broken consumer energy market. When things return to a more normal situation we must work out what energy market we want.
“There are two main routes – either regulate all pricing or have a competitive switching market. We’ve long aimed for the latter situation, but it has failed many. That’s why we must be blunt and identify who are the legitimate and who are the illegitimate victims of competition.
“If I, as a wealthy, financially educated person chose not to switch, that’s my problem. If a struggling low-income 90-year-old grandmother with onset dementia doesn’t switch – that’s all our problem. A social tariff looks to protect those who need it.”
Ofgem chief executive Jonathan Brearley said: “This is a very difficult time for energy customers, particularly the most vulnerable, and we welcome the discussion this report generates.
“We will continue to work with industry, charities and government to support vulnerable customers at this difficult time.”
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