Energy Column

Prepayment meters: A scourge penalising the poor

Thursday 25 June, 2009

By Becca Talbot becca.talbot@consumerchoices.co.uk

New figures have revealed that as many as 6 million of Britain’s poorest families using prepayment meters for their gas and electricity have been overcharged by nearly £500million in the last three years.

A scourge that’s literally penalising the poor, this month Becca Talbot looks at the true cost of energy prepayment meters...

Earlier this month an eye-opening report from the National Housing Federation (NHF) - the governing body for England’s housing association - revealed that a great swathe of “hard-up families” using prepayment meters were overcharged by as much as £464million between 2006 and the end of last year.

Criticising the government for not acting sooner and branding regulator Ofgem “asleep on the job,” the NHF has called for an end to unfair prepayment meter prices. It argues that the “big six” energy suppliers are contravening EU directives over billing, and must be reprimanded.

David Orr, chief executive of the NHF, said: “It is an absolute scandal that Ofgem has allowed energy firms to overcharge customers, and potentially breach EU rules for so many years.”

Breaking the rules?

The EU directive in question came into effect in 2004, stating that any differences between energy payment methods should reflect the cost to the supplier for processing the payment.

Orr believes the energy regulator needs to step up its game where prepayment meters are concerned though, saying it must “urgently start defending the rights of ordinary people, instead of protecting the profits of big businesses.” The NHF’s calculations found that it costs suppliers just £20 a year to process a payment by cash or cheque.

Indeed, figures from fuel poverty charity National Energy Action show there are almost 6 million prepayment meters in homes across Britain, with 14% of households paying for their electricity on prepayment tariffs, and 10.4% on gas prepayment tariffs. Combine this with recent data from Ofgem itself, which found that prepayment meter customers are charged on average £189 a year more for their energy than customers with standard meters signed up to online tariffs who pay their bills by monthly direct debit, and you’re looking at a huge wad of cash reaching the pockets of the “big six.”

Ultimately the problem lies with where and with what force the directive is imposed. As EU directives differ from EU regulations (which immediately become law in all member states), it is up to each country’s individual government to decide to what degree they want to enforce the legislation.

The suppliers reason that prepayment meters carry added costs through servicing, updating and paying the shopkeepers who credit the meters. Ofgem says it works this out to be an extra £95 a year per customer, defending the suppliers’ decision to charge higher prices to those using the prepayment system.

Maria Wardrobe, director of communications at NEA, said: “Poor families are forced to pay more because of how they pay for goods and services. They are more likely to opt for prepay options, which make budgeting easier, and are less likely to be able to afford to pay for an item in full or use more favourable direct debit tariffs.

She believes that vulnerable householders should not have to pay more for their electricity or gas just because of their financial predicament. Maria added: "It is a scandal in this modern era that there are over five million people in Britain who cannot afford to heat their cold, damp homes to a safe and comfortable standard.”

The people’s voice

Statistics from the NEA show that those using prepayment meters are generally on lower than average incomes. Almost a quarter have an annual income of less than £10,000.

Vikki Adag, 37, from Camberley, has both gas and electricity prepayment meters in her house. As a full-time mum with two young children, and only one parent bringing a monthly wage home, Vikki has to budget carefully when it comes to heating her home.

She said: “I think it’s scandalous that the energy companies can get away with charging their poorest such high rates for something that’s a necessity. They should be trying to help us, not push us further into debt.”

As expected, prepayment meters are more likely to be used by lone parents, those in receipt of benefits, those with no bank account and those with payment difficulties. But there are exceptions, such as Vikki, who simply use the prepayment meter system to help juggle the family finances.

Nevertheless, the fact remains that those with prepayment meters are being penalised by the energy giants for not having the cash to pay for their gas and electricity after they’ve used it.

Vikki was shocked by the National Housing Federation’s revelation that prepayment meter customers were being overcharged by a colossal £500million each year, and is keen to see both the government and regulator Ofgem take action on this: “Something must be done, most of us are just trying to make sure we don’t get into big debts.”

Despite Ofgem saying it didn’t see any evidence of the country’s energy suppliers acting unfairly or “as a cartel,” it seems there is a very clear difference (of at least £94 if its own figures are to be believed) on the amount that the average prepayment meter customer is being charged more than a customer on the cheapest energy deal.

Compare energy prices and see how much money you can save.
Compare energy prices

Comments