August 2022: Energy Price Cap, The Cumberland Building Society, and more.

What a month August has been. We imagine that for many people, it just seemed like there were so many updates and price rises, that it was quite overwhelming. For consumers, each announcement comes with even more tightening of the purse strings. However, it is a stressful time for creditors as the spotlight is now on them to offer the best service, they can to their consumers at such a vital time.

We hope this rundown of the past month can act as an eye-opener to the economic climate that we find ourselves in right now, with some positivity and a glimpse of a light at the end of the tunnel. 

Industry News

Ofgem announces an 80% rise in the Energy Price Cap come October

Probably the biggest announcement in August was the Energy Price Cap rise that will take effect in October. Ofgem confirmed that the current price cap will rise 80%, on top of the 54% rise that happened just a few months ago. 

For an average household on a dual fuel tariff, this will increase to £3,549 per year. From this, Ofgem’s CEO urges the incoming Prime Minister and the new cabinet to provide an additional and urgent response to the surging energy prices.

The price cap puts a maximum per unit price on energy and that is reflected in what it costs to buy energy on the wholesale market and supply it to homes. Included in the price cap is a strict and modest profit rate that suppliers can make. However, domestic suppliers are currently not making a profit. 

Although Ofgem is not giving price cap projections for January, the natural market for gas in Winter means that prices could get significantly worse through 2023. Martin Lewis warns that ‘Lives could be lost’ this winter due to the soaring prices.

Jonathan Brearley, CEO of Ofgem, said: 

“We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make.”

He then reported that “We are working with ministers, consumer groups, and industry on a set of options for the incoming Prime Minister that will require urgent action. The response will need to match the scale of the crisis we have before us. With the right support in place and with the regulator, government, industry, and consumers working together, we can find a way through this.”

On 17 August 2022, Energy regulator Ofgem published support guides for bill payers struggling with their energy costs as they continue to rise alongside wider cost-of-living pressures caused by ever increasing inflation and interest rates.

Inflation (CPI) reached double digits for the first time in 40 years

Our last newsletter announced that UK inflation hit 9.8%, with it edging towards the double digits. Well, on the 17th of August 2022, it was officially announced by The Office for National Statistics that UK inflation has risen above 10%. Although experts predicted that CPI would reach double figures this year, it is certainly at an earlier stage than anticipated.

With CPI increasing rapidly, this has resulted in renewed pressure on the government to offer support during the cost-of-living crisis. It will be interesting to see if the government steps in and what they could potentially put in place to help ease the struggle for millions of households.

Meanwhile, the FCA has published a webpage with the relevant publications, letters, updates, news and speeches referencing their expectations around tailored support during the cost-of-living crisis. This includes the portfolio letters to mainstream consumer credit providers and regulated debt advice providers from June 2022.

Bank of England Base Rate

On the 4th of August 2022, The Bank of England made history. BoE’s Monetary Policy Committee raised interest rates to 1.75% as it battles to curb rising prices. This increase from 1.25% is the highest level since December 2008 after the biggest single rise since 1995. Bank of England data that was released last week reported that consumers borrowed an additional £1.8 billion in consumer credit in June. With the cost of living still affecting millions of consumers, it is no surprise that people are turning to borrow to keep up with the rising costs. 

The Bank of England has warned that inflation could climb above 13% later this year and strongly predicts another UK-wide recession in the last three months of the year. The BoE reported that they put up the interest rates to “help return inflation to our 2% target”.

Financial Inclusion

Recently, LexisNexis Risk Solutions released its Financial Inclusion report. This analysis focused on access to affordable financial services across the UK. Currently, 1.7 billion (around 30%) people across the world do not have financial inclusion. Essentially, they lack access to affordable and useful financial services that meet their needs. 

Did you know that those with a basic bank account are more likely to apply for credit and savings products, own their own home, and protect their assets through insurance? Not only do financially included people have more access to such services, but they are also more likely to be offered affordable rates on utilities and other credit risk-dependent services.

The root cause of financial inclusion is how creditors assess affordability. When creditors determine risk, they typically use credit checks that pull data from credit bureaus. However, this is a very narrow view of a consumer and their ability to pay. From this report, it is important to take from it that affordability checks must be more holistic to to include as many people as possible.

To read the full Financial Inclusion report by LexisNexis, click here.

HM Treasury Statutory Debt Repayment Plan (SDRP) consultation closed

On 5 August 2022, the HM Treasury SDRP consultation closed following a series of industry events through June and July 2022. Responses from creditors and the debt advice sector suggest there is more work to be done to make this a mainstream debt remedy by the end of 2024. UK Finance has taken a strong position and recommends more consultation in the final quarter of 2022. 

Both creditors and debt advice providers see the need for action now around dealing with priority creditors, like energy providers and local authorities as the cost-of-living crisis becomes more acute. Affordability assessment services with embedded income optimisation tools and social tariff eligibility calculators will be critical as more consumers and micro-businesses come forward with problem debts and need holistic help. StepChange has highlighted this week that the proportion of new clients with energy arrears has jumped. New clients in gas arrears rose from 23% in June to 26% in July, while those in electricity arrears was up from 28% in June to 30% in July. 

We are monitoring for further changes to the Standard Financial Statement (SFS) and will apply these immediately as guided by the Money and Pensions Service (MaPS).      

IE Hub News

The Cumberland Building Society

The Cumberland Building Society officially joined IE Hub’s client list. We are extremely excited to partner with The Cumberland, which is known for its purposeful ‘kinder banking’ approach. Together, we aim to support as many customers as possible who are struggling with debt.

This new partnership will enable The Cumberland to send customers who are struggling financially, a link to the IE Hub online platform. Once on the platform, they can share their income and expenditure information easily, without the need for a stressful telephone conversation with the collections department.

Dylan Jones, IE Hub CEO Best Start Up UK interview

Our CEO, Dylan Jones recently spoke to BestStartup.co.uk about how IE Hub is on a mission to empower vulnerable customers across the UK. He spoke about how fulfilling it is working alongside “business leaders, founders and organisations that want to integrate sustainable social and financial well-being into the core of their business and create a positive impact on some of the biggest consumer debt challenges facing today’s society.” 

Regarding IE Hub, Dylan said “Most of you reading this will be in business. You are likely to have customers. You are also likely to have had customers who can no longer afford your product or service. Some customers may even be falling behind on their payments. The last thing responsible businesses want to do is push customers further into debt, however, firms need to know what a customer’s financial situation is so that they can set payment arrangements. This is where IE Hub comes in.” 

To read the full interview, click here.

Focus on tailored support for consumer with characteristics of vulnerability

As the planning window (by 31 October 2022) for the FCA Consumer Duty becomes ever closer, we will be making the most of recent partnerships, like the Vulnerability Registration Service (VRS), in response to creditor transformation plans and inclusive design requirements. Members of the team will be supporting a number of vulnerability and collections summits through September, October and November in different sectors, including essential service providers and credit unions. The need for joined up affordability and vulnerability assessments is becoming ever more apparent from a trusted provider where the consumer is in control of their personal data and how they share it.        

A light at the end of the tunnel- Vicky’s Story

Here at IE Hub, we work to empower customers in financial difficulties. Often, we hear from customers who have been empowered by our service and have taken the first steps to improve their financial well-being! We recently spoke to an IE Hub customer, Vicky, who wanted to share her story with us.

Vicky is an IE Hub customer whose family fell into debt when her husband lost his job. She felt extremely anxious and was finding the 'Income and Expenditure' phone calls stressful.

A friend told her about IE Hub and how she could create her own 'Income and Expenditure' budget online and send it to all the companies who needed it. Vicky found this to be a much easier process and she liked that she could save the budget and return to it as and when she remembered other outgoings.

After she had completed her budget, Vicky shared it with NWG (Northumbrian Water Group) and Bulb via the IE Hub system. She also used the IE Hub free post service to send it to ScottishPower.

Vicky has since set up affordable payment plans with all three creditors and urges others to do the same!

Looking Ahead

As we approach the end of 2022, the next few months are going to be critical for consumers and the finance industry. No matter what part you play, you will be affected by the current climate of tighter purse strings and increased stress. We may have little to no control over price rises, but we have some control over what support we can offer to those who are currently in a life-or-death situation.  

To discuss how IE Hub can help ease the stress of both your customers and your collections team, head to our website and book a call.