Does ‘public utilities’ mean anything any more?
Concern about poverty has long included awareness of the precarious grip that householders struggling to make ends meet have on the basic household essentials: gas and electricity, water, and more recently, telephones and allied services. Here, Martin Fitch explores the impact the privatisation of the utility industries has had on its poorer customers.

Privatisation and a growing divide
Opening the gas and electricity market
Socially responsible suppliers?
Water
Social security benefits
The ‘digital divide’

Privatisation and a growing divide
The expression ‘fuel poverty’ became current in the 1970s and 1980s, then ‘water poverty’ in the early 1990s, when water privatisation pushed up prices and forced families on metered supplies to limit their consumption or face disconnection. With telephones, 1990s' talk of ‘the unphoned’ has shifted rapidly to anxiety about exclusion from access to internet services, and the talk is of the ‘digital divide’. The arithmetic is straightforward: if you are poorly off you need to spend much more proportionately on these and other essentials than if you are well off. We are not talking about the absence of scope for discretionary expenditure - the problem is not having enough for basic needs, the choice between eating and heating, in fuel campaigners’ parlance.

Privatisation of the utility industries and the accompanying changes have meant that in the last decade we have seen a revolution in our arrangements for supplying these services, so much so that the very idea of ‘utilities’ and of their status as ‘public’ is in question. We are all ‘customers’ now. We go shopping for these amenities. Overwhelmed by choice we allow ourselves to be swayed by brand. What do these extraordinary changes mean for people who dread the gas bill, who, if they have a phone know it will be the first thing to go if things get tight, who may have to apply to their water company’s in-house charity to meet their water charges? In our consumer-driven society, what have been the consequences for ‘failed consumers’ of the transformation in the way we come by these basic household essentials?

Opening the gas and electricity market
When Labour took power in 1997 an immediate concern was the way the opening of the gas and electricity markets was likely to drive a wedge between consumers in general and those of us who have become known as ‘the disadvantaged’. Faced with competition, energy companies were urgently scrutinising their costs for each of the various segments of their markets and adjusting prices to reflect those costs. If they were to overprice, competitors would entice their customers away. There was no questing of subsidising costly-to-serve prepayment consumers by charging direct debit payers more, so tariffs started to diverge. Moreover, as the markets were opened further, the differential grew. People who are comfortably off do not, on the whole, have prepayment meters - with prepayment meters for your fuel you pay around £80 a year more, a situation familiar to poverty campaigners in which ‘the poor pay more’. Faced with a serious conflict between its avowed commitment to social justice and enthusiasm for the efficiencies promised by competition, the then Energy Minister, John Battle, rather rashly declared: ‘If competition does not deliver a better deal for those who need a better deal the most, then it will not have delivered at all’. But to be on the safe side, the Government asked the energy regulator to come up with a Social Action Plan to address worries about consumers who were losing out. Given the regulator’s primary concern with economic regulation and the promotion of competition, it is unsurprising that his Social Action Plan has offered little more than (lots of) research into matters like prepayment, and a re-launch of the codes of practice (company self-regulation) dealing with matters like debt and disconnection. The Utilities Act 2000 contains a provision empowering the Secretary of Sate to require companies to adjust tariffs in favour low-income consumers; however, it came with assurances that it was most unlikely it would ever be invoked.

Inequality in access to energy services has contributed to the widening of the social division that opened up during the Thatcher years.

Gas and electricity prices have been reduced substantially in real terms for all consumers since privatisation. But in relative terms people who are struggling are worse off, and inequality in access to energy services has contributed to the widening of the social division that opened up during the Thatcher years. The general benefits of the opening of the gas and electricity markets may readily be distinguished from the benefits derived by particular groups of consumers. By the end of May 1999 the domestic gas and electricity markets were both fully open to competition and by the end of March 2000 5.5 million gas consumers and 4 million electricity consumers were no longer with their traditional supplier. Domestic energy prices fell in real terms for the sixth year running in 1999, gas by 3.5 per cent on the previous year and electricity by 4 per cent. However, there was unevenness in these movements, depending upon which ‘market segment’ consumers belonged to. Consumers paying by direct debit were more likely to have switched supplier, 30 per cent of these consumers having left British Gas by September 1999, the equivalent proportions for standard credit payers and prepayment being 24 per cent and 13 per cent respectively. The electricity pattern shows a similar gradient, the corresponding figures being 15 per cent, 9 per cent, and 4 per cent. There is the same sort of pattern in the prices consumers pay for their fuel. In 1999 the average prepayment consumer paid £13 more a year for gas than a standard credit consumer, and £50 more than a direct debit customer; the corresponding figures for electricity being £18 and £29. The differential in charges for these different customer groups started to widen for both fuels, to the detriment of prepayment consumers, from the onset of preparations for the market opening in the mid-1990s. Comparing 1998 and 1999 this trend has continued in electricity, though it has been reversed for gas. Energy markets were first opened for domestic consumers over four years ago in April 1996; their divisive effect was apparent immediately and there is no convincing evidence it will be restrained by the measures now in hand. On John Battle’s test, opening the domestic energy market has not been a success.

By the end of March 2000 5.5 million gas consumers and 4 million electricity consumers were no longer with their traditional supplier.

Socially responsible suppliers?
There are signs that the irritating problem of badly-off consumers missing out on the benefits of utility transformation is becoming the subject of an intriguing round of ‘pass the parcel’. A tendency appears to be developing for responsibility for people who face problems satisfying these basis needs to be passed from Government, to regulators, and then to the utility companies. It is almost as if a tacit deal had been struck in which companies are permitted their privileges provided they exercise ‘social responsibility’. In energy, the Government’s Green Paper Fair Deal for Consumers – Modernising the Framework for Utility Regulation passed the ‘social dimension’ to the energy regulator. In the Social Action Plan he was asked to produce, the regulator has reserved a major role for companies in delivering programmes of assistance to people suffering fuel poverty. The companies are obliging. PowerGen, for example, has launched its Age Concern Energy Services package offering older people around £60 a year off their fuel bills, plus - in an initiative apparently in competition with social security’s cold weather payments scheme - an allowance equivalent to two hours of gas fire heating each day the temperature falls below 0°centigrade during the winter. Eastern Energy, owned by the global utilities company TXU, is offering StayWarm, a scheme with certain resemblances to social security’s direct payments scheme, in which pensioners and means-tested benefits recipients are invited to contract annually with the company to make regular fixed payments for their gas and electricity, in return for which they will be entitled to however much fuel they use, even if it is more than had been estimated. In water, ten companies have ‘water charities’ to bail people out of difficulty when they cannot pay their water bills, including financial assistance in other ways, even paying off social fund loans. These schemes go well beyond out-sourcing, in having private sector companies take responsibility for delivering access to their services, devise initiatives, come up with solutions, and provide the funding. Familiar arrangements for out-sourcing delivery of programmes remain, of course. The Department of the Environment, Transport and the Regions’ New Home Energy Efficiency Scheme is to be delivered in the east of England by the company Eastern Energy, and all gas and electricity suppliers are to be required, under the (confusingly named) Energy Efficiency Standards of Performance Scheme to devise and deliver energy efficiency programmes, and to bias them to households experiencing fuel poverty. But initiatives like StayWarm and the water charities are something new in constituting a movement of private companies into the territory vacated by the shrinking Welfare State.

Ten companies have ‘water charities’ to bail people out of difficulty.

Water
It was in water services, the most closely regulated of the utilities, that the change of government in 1997 had the most dramatic effect. Disconnection for debt has been abolished and in addition prepayment for water has been outlawed (the provision called budget payment units had been most fully developed by Dwr Cymru/Welsh Water and Severn Trent). The courts have outlawed ‘two-in-one’ prepayment in which it was intended by the Welsh multi-utility Hyder, owners of Dwr Cymru and South Wales Electricity, that electricity and water be paid for through electricity prepayment meters – automatically depriving people of their electricity if they failed to keep up payment for their water as well! These prohibitions convey welcome messages about the vital nature of utility services. But prices are still more than many can afford, and New Labour’s attitude to charging has been disappointing. Since privatisation, the great debate around charging for water services has been between requiring payment on a tax-like basis or on market principles – or rather, as water and sewerage services are supplied for domestic use by regional monopolies, on the quasi market principle of relating charges to supposed costs. Marketisation has won the day, and although rateable value charging will for practical reasons remain in place for the medium term, the future lies with volumetric charging – 20 per cent of households now have meters compared with 3 per cent at privatisation. So, water, for New Labour, is, so far as charging is concerned, ‘a commodity’ as opposed to a public service. And to cater for the blindness of markets to need, a ‘water benefit’ has been in place from April this year to give help with bills to metered households on means-tested benefits if they have medical needs leading to a high water requirement, or three or more dependent children. The policy ambiguity of a softening of budgeting discipline (ending disconnection) together with a determination to press ahead with marketisation is bound to heighten tension in water companies’ debt recovery operations. Water companies remain profit driven and will be anxious to deploy alternative sanctions for debt recovery, although, significantly, the regulator has left open the option of re-opening his periodic review of price limits (setting the maximum amounts companies can charge) if companies encounter significant costs arising from bad debt.

Social security benefits
A remarkable aspect of the recent history of social welfare has been the way social security provision has steered clear of involvement with the difficulties faced by low-income consumers in meeting their utility needs. Nowhere is this avoidance better illustrated than in the contrast between arrangements for the water charges of consumers on income support with those for claimants of the preceding ‘last resort’ benefit, supplementary benefit. Before the switch, in 1988, supplementary benefit claimants received as part of their allowance the actual charge for water services, and as it was often rebated along with rent and rates through a link with the housing benefit scheme most had not even to think about paying for water. With income support, by contrast, claimants have been left to pay widely differing charges out of their standard benefit, depending on the regional company that supplies them, and on whether or not they have a metered supply. Repeated approaches to ministers have been made over the years by the consumer and poverty lobbies, both with respect to the adequacy of income support to meet water charges, and to the effectiveness (and future) of arrangements for the direct payment of water charges by the Benefits Agency. Government has taken the view that the matter is one for the regulator and the companies.

The ‘digital divide’
The expression ‘digital divide’ speaks of a concern that belongs to a different, and potentially more troubling, dimension than deprivation of fuel or water supplies. In acknowledging the socially skewed distribution of connection to the Internet it addresses the status of electronic services as gateways to other amenities and opportunities for social participation. This is well illustrated by the recent British Gas announcement of trials of remote metering of its domestic fuel supply services. Initially this will use a fixed radio system for automatic meter reading equipment in people’s homes. However, British Gas is also considering using this technology to offer consumers lower bills by having time of day pricing that is more closely aligned to suppliers’ costs – this is a facility now used by three million consumers in the US – but the worry is that its availability is likely to be limited to consumers with internet access. Poorly off householders are less likely to have this facility so they will pay more for their fuel. (In passing, ‘financial exclusion’ is a concern similar to the digital divide in that a bank account also provides a gateway to other services. The Government is seeking to address financial exclusion with the Post Office and the British Bankers’ Association by creating a Universal Bank to offer simple accounts without loan facilities to the estimated two million people presently without access to the financial system.)

There have been hopes that digital TV will help counter the digital divide.

Care is needed in talking about the digital divide. Whereas we discuss fuel poverty and water poverty as social issues with a history and a present tangible reality, the digital divide looks to problems ahead – and the difficulty with that is the rapid pace of technological change. We know that poorly off households are less likely to have home computers than comfortably off homes. According to ICM research, only 2 per cent of social class DEs say they have internet access in the home, compared with one in three ABs and 14 per cent of all adults. However, technological change is eroding the distinctions between information technology and the other means of accessing electronic services, digital TV and mobile phones. This phenomenon (known as ‘convergence’) means that these other gateways, as well as home computers, will become increasingly available to supply interactive services including access to home shopping, email, the Internet, and the home delivery of government services – as well as entertainment. The recent history of one branch of our converging electronic services, telephony, well illustrates the unpredictability of access issues in this area. From the mid-1990s, with telephone ownership stuck at around 93 per cent of households, there was much talk of ‘the unphoned’, and regulatory programmes were put in place to advance towards ‘universal service’ – affordable basic telephone services for all. Yet, within a couple of years or so the issue had been swept aside by the staggering popularity of mobile phones. Standard ‘fixed line’ telephone services are now installed in 96 per cent of homes and, with the exception of about 350,000 households who would like a phone but have not got one, everyone else has a mobile phone. It is especially noteworthy that this advent of virtually universal access to telephony has been market led, not the outcome of a regulatory initiative. And it is incidentally of interest that 77 per cent of mobile users without a fixed line at home pre-pay for their service, the apparent acceptability of prepayment for mobiles contrasting strikingly with prepayment’s problematic standing in fuel supply and unacceptability for water.

There have been hopes that digital TV, offering interactive services by way of a keyboard or remote control, as well as a greater choice of channels, will help counter the digital divide. Indeed, 4.5 million homes now have digital TV, compared with 6 million having internet access vial their home PC. However, take up of digital TV by 31 per cent of higher income homes compared with only 14 per cent of low-income households follows the familiar pattern – a pattern apparently unaffected by the attraction of greater choice of channels rather than the interactive services of email and home shopping, which are used by fewer that one in five homes having digital TV. Given their status as competitively marketed amenities it would be surprising if the social divisions of our markedly unequal society did not in future include inequality of access to electronic services. But compared with access problems over fuel and water it is much less easy to predict just what form exclusion from the ‘information society’ might take. Policy development in the area is likely to be more hesitant, to ‘wait for the market’, and to run the risk therefore of neglecting to address this key social issue.

Martin Fitch is Research Associate in the Centre for Utility Consumer Law at the University of Leicester

Poverty 108, Winter 2001