Better use of data is needed for better energy support policies

The support that the government has offered to help households cope with huge rises in energy bills has so far largely taken one of two forms: one off payments directly to households and universal subsidies that cap the price that is paid for each unit of electricity. 

Both approaches are deeply flawed, so it is good news that the Treasury is now – albeit belatedly – working on better solutions for the future. It should continue to do so even if energy prices fall and support is not judged to be required in the immediate future, while the experience of this crisis is also a reminder of how gaps in data have lead to significantly suboptimal policy.  

Government policies to support those facing high energy bills are inefficient 

Since the start of 2022 the government has made a series of one-off payments to households to help with energy costs – initially announcing blanket payments to all households (through the £400 energy bill rebate) and then offering more targeted payments to those on means-tested benefits, disability benefits and the state pension. Both are flawed. They both offer the same amount of support regardless of energy use (leaving a large group of people with low incomes and unusually high energy use suffering a great deal), while the latter also leads to perverse work incentives. ¹³ For households just within the universal credit earnings threshold by £1, earning £1 more could mean that they miss out on the £900 cost of living payment, so they will be disincentivised to do so.  

The government has also offered universal subsidies to energy prices – such as the Energy Price Guarantee – which provide benefits that are proportional to energy use. But subsidising the unit price of energy means energy users do not face the true cost of energy. This means they face less incentive to improve the energy efficiency of their homes. By helping everyone regardless of need ¹⁴ Including groups who don’t need the support but have real estate with the greatest potential for energy efficiency improvements (for example, the top 10% of earners). See e.g., Fetzer T, Gazze L and Bishop M, How large is the energy savings potential in the UK?, CAGE working paper no. 644, November 2022. https://warwick.ac.uk/fac/soc/economics/research/centres/cage/publications/workingpapers/2022/how_large_is_the_energy_savings_potential_in_the_uk/  the policy is also costly due to deadweight. 

Neither approach is ideal. At a time when the supply of energy is significantly reduced, prices should ideally not be subsidised. Instead, government should let people face the true cost of energy and adjust their usage accordingly, while compensating some or all of those who lose out via well-targeted income support.  

The Treasury is now developing alternative proposals 

The government’s response to the energy crisis has so far been hamstrung by the lack of more sophisticated mechanisms for support. This was understandable in February – when then chancellor Rishi Sunak’s reached for longstanding mechanisms (such as council tax) and blunt new tools (such as universal energy bill rebates) – when the price spike was expected to be short-lived and the focus was on delivering emergency support via whatever means were available. 

In May Sunak expanded the universal energy bill rebates and offered flat-rate, one-off payments to benefit recipients, while in September prime minister Liz Truss and her chancellor Kwasi Kwarteng announced the Energy Price Guarantee, which operates in a very similar way to the existing Ofgem price cap, just with a cap at a lower level.  

Officials were working on alternative options but, due to the chaotic political environment, were often rushed by ministers into getting policies announced. This has resulted in the government rolling out a package of support that is less well-targeted and less well-designed than it could have been. 

Making better policy requires better use of data

These issues are not new. The Committee on Fuel Poverty ¹⁸ See, e.g., Committee on Fuel Poverty, Annual Report, October 2021. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1028724/cfp-annual-report-2021.pdf  has criticised successive governments for failing to maximise the use of data to help identify fuel poor households and better target support. It is welcome that this is finally being addressed.  

However, implementing more complex support schemes would involve combining multiple datasets within government, could involve the use of data from external parties such as energy suppliers, and would perhaps require the use of advanced statistical techniques to fill data gaps. Doing so is incredibly difficult in the UK for several reasons that are not specific to energy policy. ¹⁹ Newport D and Browne J, Target practice: can government really target its energy price guarantee by April?, Tony Blair Institute for Global Change, 18 October 2022, https://institute.global/policy/target-practice-can-government-really-target-its-energy-price-guarantee-april  The government simply doesn’t possess a universal dataset of income at the household level, while significant amounts of government data is held in fragmented and inconsistent ways, making it difficult to aggregate. 

To add to the technical difficulties, departments are often reluctant to share data with one another and many lack the skills and infrastructure required to do this sort of work at pace. The government itself has recognised these problems, most notably in the declaration of government reform, committing to ensure that “policies are informed by the best data analysis from across government”. ²⁰ Cabinet Office, Declaration on Government Reform, 15 June 2021.  It should be actively thinking in its day-to-day work about how to fill data gaps in all policy areas, modernise its data and digital practices, better enable the sharing of data between government departments and, where necessary, the use of data from outside government. 

The quality of policymaking for energy support so far this year is a reflection of both the disruption caused by political chaos and long-running issues relating to digital and data capabilities within government. But the Treasury is now trying to overcome these barriers and develop more innovative solutions in the energy policy space, and the appointment of its first chief data officer and development of its internal digital, data and technology (DDaT) profession is welcome. 

But this is not just about the energy crisis. The government should make similar efforts to use data to improve policy across the board – not just when the pressure is on to find an urgent fix.