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Prepayment Meters

Volume 564: debated on Tuesday 11 June 2013

I am pleased to be able to appear under your chairmanship this afternoon, Mr Hollobone.

The debate came about because, on Report, I tabled amendments to the Energy Bill on the Government’s new proposals to help consumers with their energy bills. Unfortunately, my amendments were not discussed due to lack of time, but there are serious issues relating to the new powers and to prepayment meters in particular.

Under what was new clause 13, powers would be taken to allow the regulator to require

“licence holders to change the domestic tariffs or other terms of domestic supply contracts so as to reduce the costs to their domestic customers for supplies of gas or electricity.”

However, what was then subsection (3)(e) provides

“for requiring a licence holder to change the domestic tariff or other supply contract terms on which it supplies gas or electricity to a domestic customer by—

(i) switching to a different domestic tariff or different supply contract terms, unless the customer objects, or

(ii) offering the customer, or inviting the customer to switch to, a different domestic tariff or different supply contract terms.”

My problem is with sub-paragraph (ii).

I fully appreciate that the Minister may argue that consumers should be given the maximum amount of choice and should be empowered to make their own decisions, but the plain fact of the matter is that, as we all know and as is remarked on in the regulatory impact assessment of the Bill, there is a huge amount of inertia among energy consumers, in particular those who remained with their former monopoly supplier after privatisation. If the provision in the Bill remains as it is, there is a real danger that companies might take the second option and make an offer to the consumer. We are then faced with the issue of what form that offer might take.

We already receive a huge amount of paper from our energy providers. As well as bills, we get special offers and offers to take on maintenance of domestic appliances, drains, pipes, electrics and whatever else. We also get invitations to take up different ways to pay our bills, especially if the providers have not yet signed us up to a direct debit; once we have direct debits, they make regular attempts to increase the amount we are paying by direct debit—amounts that sometimes bear no relation to how much energy we actually use. Now, too, we get annual and regular energy statements. That is all useful, but how many of our constituents really take the time to go through that mountain of information, and how many just put it in the recycling bin with all the other junk mail?

The first option, however, is straightforward: if consumers are on a contract or supply terms that are not the best, they can be automatically transferred to a better deal, unless they make the specific decision not to do so. That seems to have a better chance of fulfilling the Prime Minister’s promise to ensure that every customer is on the lowest tariff. Of course, the situation would have to be monitored, to ensure that the energy company is indeed offering the lowest tariff, but that can be addressed by Ofgem and to an extent by the provisions of subsection (5) of what was the new clause. I am interested to hear what Ministers have to say about that point.

My other concern and the main point of today’s debate is how that relates specifically to some of the poorest in our society who have to rely on prepayment meters. If someone is on a direct debit tariff, that may be fine, but if they are on a prepayment meter, for example, they will still be stuck on a higher tariff, since those tariffs are generally higher than the ones that would be available to someone who is paying by direct debit. If the Government are truly intent on ensuring that everyone has the lowest possible bill, they need to ensure that the requirement not only applies within the type of contract that the customers already have, but allows them to move to a cheaper type of contract.

There are particular problems with prepayment meters. It has always seemed to be slightly perverse that this is one of the few examples in which consumers end up paying much more by paying cash in advance.

I congratulate the hon. Gentleman on bringing this important matter before the House for consideration. I have been dealing with a number of constituents who have had similar problems with the tariffs for, for example, oil. Does he think that other options might be necessary, not only for oil but for gas, so that people can switch, whatever the fuel that provides their heating? If we do not enable that, fuel poverty will continue to grow.

The hon. Gentleman makes a valid point. I have often talked about oil, though it might be outwith the terms of today’s debate, but I take his point, which is very true.

The issue of prepayment meters is important. Citizens Advice Scotland issued a report on energy recently, showing that citizens advice bureaux had dealt with 7,400 people with 9,500 different energy issues in 2011-12; of those, 83% related to difficulties with paying or debt. The report stated that

“the cases highlighted by bureaux regarding difficulty paying are most commonly with regards to prepayment meters recouping an unaffordable amount for arrears every time the consumer tops up.”

The problem with prepayment meters is not only that the tariff tends to be higher—to be fair, things are better than they used to be, and many companies now fix at the standard tariff, although this is higher than the tariffs that can be achieved on, for example, direct debit—but that many, though not all, of those on prepayment meters are put on them because they have a debt, and part of that debt is recouped every time the consumer tops up the meter. The costs of installation can also be added to the debt, meaning that consumers are pushed further into debt.

Meters tend to be used when a consumer is already struggling. The perverse effect is that if people are already struggling to keep up with payments on the cheapest tariff, such as an online one paid by direct debit, should they fall into difficulties—perhaps they lose their job or become ill, or for any of a vast number of reasons—they end up being put on an even more expensive tariff, which simply deepens their difficulties.

I congratulate the hon. Gentleman on making a fine point. Does he agree that, with prepayment meters, we now have the grotesque example of people cutting themselves off by not paying beforehand, rather than waiting for the fuel companies to cut them off?

The hon. Gentleman makes an excellent point, and I shall come on to discuss that issue shortly.

The report from the Scottish CAB cites the case of a single parent with two children who loses £7 towards arrears every time she puts £10 in the meter, and the £3 left is entirely insufficient to heat her home. What chance has she of ever getting out of the cycle of debt, or even of keeping her home warm?

When the debate was announced, Barnardo’s got in touch with me and mentioned the problem, expressing its concerns that the Government’s plans to simplify the charging system will still allow fuel companies to charge higher prices for those who pay for their electricity and gas through prepayment meters rather than through direct debit. Barnardo’s quoted research showing that vulnerable households in or on the margins of poverty are forced to pay through their energy bills an extra £1.1 billion a year above those on high incomes. A key reason for that is that such households often have to opt for a higher-cost payment method.

Interestingly, the energy companies often argue that the costs of providing and servicing prepayment meters are higher than for other payment methods, but Barnardo’s cites the example of what it refers to as the “reasonable cost” of the Northern Ireland keypad, which shows that prepayment meters do not necessarily have to involve a large premium. I am not familiar with the Northern Ireland system, but the Minister might want to investigate it.

The hon. Gentleman and I discussed this matter before and, if anyone heard my phone going, that was a text coming through to confirm the issue: the administrative costs in Northern Ireland are less, which is why it is cheaper than on the mainland. If the keypad system in Northern Ireland can be cheaper, perhaps that needs to be looked at.

I thank the hon. Gentleman for that clarification. Ofgem should certainly be looking at that matter, and perhaps the Minister will encourage it along that route.

Barnardo’s also makes the point that the reason that many people use such meters is that they do not have access to a bank account to take advantage of direct debit payment. That is undeniably true, but it is also true that it is almost impossible for many people in such situations to get a bank account, since, frankly, the main banks are not interested, and many of them now seem to be moving to charging for current accounts, which is hardly likely to help. Barnardo’s calls upon the Government to extend the Post Office card account to allow payment of bills by direct debit, which I understand was promised in the coalition agreement. I appreciate that this may be outwith the Minister’s remit today, but that could be considered when introducing the universal credit.

Prepayment meters also have the problem of self-disconnection, as the hon. Member for Arfon (Hywel Williams) said. If people cannot afford to heat their homes, they simply do not put money in the meter. There is no active disconnection by the energy company, but the end effect is the same. That applies not just in Scotland but throughout the UK. The hon. Gentleman raised the issue in relation to Wales, but Stratford-on-Avon and district citizens advice bureau has contacted me about it. It takes issue with the term “self-disconnection”, making the valid point that it implies an element of choice. It also makes the point that in a harsh winter the loss of power to homes is national news—even during the spring this year it was national news—yet the plight of prepayment meter users, who must endure a regular loss of supply in both summer and winter because they cannot afford to buy credit, goes largely unnoticed.

Stratford-on-Avon and district citizens advice bureau told me that it has worked with other citizens advice bureaux and other organisations in its area to conduct a survey of prepayment users. It found that, as I have said, the exclusion of people from the best deals is clearly part of the problem, but it also noted that a worrying number of people do not understand how they are charged when they have such a meter. Those who move into a property where there is already a prepayment meter inherit an unfair system. They may quickly get into difficulties through no fault of their own and they often cannot afford to change the system they inherit.

Citizens Advice Scotland also raised that point and noted that many consumers are caught unawares by standing charges, so debt may accumulate in periods when they are using very little energy and impact upon them when they start to use it again in the winter months. It quotes the case of a client who is having 70% of each payment taken to meet those charges. Surely it is high time that action was taken to end such charges.

Citizens Advice Scotland adds that when consumers are in receipt of benefits, energy suppliers should recognise that they face additional payment difficulties and take action to support them, especially given the significant ongoing changes in the benefit system. In particular, suppliers should monitor usage, particularly among prepayment consumers, and take proactive action if there is evidence of self disconnection. I have been contacted by the StepChange debt charity, which has pointed out that an increasing number of over-60s are in fuel poverty because of rising prices, and that that number is substantially higher than in other age groups.

Citizens Advice recommended that prepayment meters should be fixed at the supplier’s cheapest tariff. I fully support that and urge the Minister to take it up with the energy companies and, if necessary, introduce amendments to the Energy Bill in the other place to make it happen. He did not accept my amendments when they were offered to him, but I will not take offence if he introduces his own. That would help to ensure that customers who have difficulty paying for energy and use prepayment meters as a budgeting tool are not penalised for doing so, and that customers with arrears are not pushed further into debt by the additional costs of installing a prepayment meter and of paying a higher tariff.

I would go even further. I sought in my amendments to put a cap on the amount of any payment into the meter that can be used to meet accumulated debt. I suggested 20%, but in the example I quoted earlier 70% was being taken and we should agree that 70% is totally unacceptable in such circumstances.

When alluding briefly to my amendments last Monday, the Minister’s colleague, the Minister of State, Department for Business, Innovation and Skills, the right hon. Member for Sevenoaks (Michael Fallon), said that he was not in favour of a specific percentage because that could mean that people would continue to pay towards the debt over the summer months when they use little gas. However, as I said, because of the operation of standing charges on prepayment meters, debts continue to increase over that period whether energy is being used or not, so that argument does not hold water. He also stated that it would take a long time for a family to get out of debt. The problem with that approach is that people on low incomes cannot ever get to the stage of being able to heat their homes properly, leading to ever greater difficulty.

It may take much longer to pay off the debt, but it is surely better to accept that in an age of ever-increasing energy bills—few of us believe that they will fall significantly in the foreseeable future—we must make a much greater effort to help those who are in genuine difficulties, and accept that when people have got into difficulties the arrears simply must be paid off over a much longer period. It is imperative to ensure that people can heat their homes and cook their food, and are not subject to having no energy because they cannot afford to put credit on the meter.

Will the Minister consider whether that is a sensible way of dealing with an increasing problem? If he followed up some of my suggestions, it might help the Prime Minister to fulfil his promise to ensure that everyone is put on the lowest tariff.

I congratulate the hon. Member for Angus (Mr Weir) on securing this debate on fuel poverty and the use of prepayment meters. He is an acknowledged champion in this place of the fuel-poor, and from my time on the Select Committee on Environmental Audit I know of his personal commitment and professional expertise. Whenever he speaks on the subject, we listen carefully and thoughtfully even if we do not always agree. I reassure him that the coalition Government are committed to helping hard-working families and consumers with the rising cost of living. We recognise that the rising cost of energy is currently one of the biggest worries for householders.

The modest fall in the number of households living in fuel poverty was confirmed in April. The latest figures show that in 2011, 4.5 million households in the UK were in fuel poverty. That was a slight decrease from 4.75 million in 2010, which saw the first fall in the number of fuel-poor since 2004. Throughout the last Parliament and for a couple of years before, there was an inexorable increase in the number of fuel-poor. Despite the modest falls, encouraging as they are, there is absolutely no room for complacency. The figure is still far too high and we are honest enough to realise that some of the problem is beyond the Government’s control. The steady growth in the number was driven primarily by increases in the wholesale price of gas. There is a direct correlation not between the sympathy that the Government of the day feel for the fuel-poor and the rhetoric they employ, but between the wholesale cost of gas and the price of energy that people must pay. We must do more to decouple that link and to cushion consumers from the international gas markets.

I do not disagree with what the Minister has said so far. He is correct about what is driving rising fuel prices, but does that not make it imperative that the Government adopt the little things I suggested to ameliorate the situation? It is all very well talking about wholesale gas prices, but it is the people at the sharp end who are suffering them. My suggestions would not solve the problem, but they would ameliorate the situation for those vulnerable people.

The hon. Gentleman made several points that I hope to cover, but I want to set out the framework and the context in which we must operate. Of the 3.2 million fuel-poor households in England in 2011, around 20% paid for their electricity and 24% paid for their gas with prepayment meters. Many hon. Members and certainly members of the public will be surprised that the figure is so low, because there is often an assumption that “fuel-poor” and “prepayment meter” are synonymous. In fact, only a relatively small number of the fuel-poor—20%—are on prepayment meters. Prepayment meters enable customers to monitor and control their energy expenditure in a direct and immediate way and, as a last resort, they can be a valuable alternative to disconnection for non-payment of bills.

Where prepayment meters are installed to recover a debt, that element of a customer’s payment must be set at a level that takes into account their ability to pay. The hon. Gentleman rightly says that there must be an equitable balance in such situations between debt repayment and the real ongoing needs of a household to cook, to heat the home to a safe level and to light the premises, particularly where there are children, or elderly or vulnerable people. It is understandable that he seeks a cap for weekly payments. Customers in debt repay a fixed amount at fixed intervals—for example, weekly. The amount repaid is calculated for each customer based on their personal circumstances and their ability to pay. He asked what would happen if their circumstances changed. In those cases, customers should talk to their supplier about the change and how it may impact on their ability to repay debt.

I recognise that a percentage repayment, such as 20% of the amount spent, may feel fairer, and that fixed payments can be a blunt instrument, but there are two sides to the coin. There is a risk that setting a percentage limit may create a floor rather than a ceiling. It may encourage suppliers to use the limit as the automatic default position rather than, as they do now, individualised payment plans, which are surely in everyone’s interest.

The hon. Gentleman makes the valid point that in some cases customers may feel that they are set an inappropriately high debt recovery level. If that is the case, they need to speak to their supplier. If that does not satisfy them, they should speak to Ofgem or the energy saving advice service, which is run by the Government, for further advice on what to do.

Does the Minister not accept that if Citizens Advice Scotland is coming across rates of 70%, where £7 in every £10 goes towards paying down the arrears, something is seriously wrong? It is not just one case; Citizens Advice Scotland cites several. That cannot be right.

I agree with the hon. Gentleman that it does not seem right, but I am not aware that it is the norm; it is the exception and if he is aware of such cases, I encourage him to take them up. I want to know more about the individual circumstances of the household and how the debt built up to such a level. We cannot have a situation where we ignore moral hazard and certain households do not feel an obligation to repay debt, because that penalises and is unfair to those on low incomes who struggle to pay their electricity and heating bills on time. We simply cannot give away heating when their next-door neighbours are struggling hard to do the right thing and pay the bills. There is a balance of fairness to be met.

In an intervention, I made a point about the administrative costs of the keypad system in Northern Ireland. It is cheaper than the system on the UK mainland in England and Wales. Is the Minister prepared to consider that system? If we could reduce administrative costs, it would be a factor in the saving for the consumer.

I would be more than willing to do that. Perhaps the hon. Gentleman will be kind enough to write to me with his particular proposal, or the example he thinks best illuminates the case. Prepayment meters obviously have a cost. Ofgem estimates that it costs £88 more than paying by direct debit. If there is a cheaper alternative model for prepayment meters in Northern Ireland, I, for one, would be extremely interested in looking at it.

The hon. Member for Angus mentioned the Prime Minister’s commitment to put everyone on the best deal, but that deal must be cost-reflective. As I said, it costs more to put people on prepayment meters. Ultimately, with only 20% of the fuel-poor, roughly speaking, on prepayment meters, we should not see them as a good thing. In an ideal world, no one would be on a prepayment meter. We do not want to create such an attractive situation that more people opt to go to a prepayment meter.

One of the exciting developments in technology is the advent of smart meters, which will considerably change the ability of consumers to interact with suppliers and will enable suppliers to have a much better relationship with consumers. Consumers will be empowered to make better choices of tariff and how they pay. Obviously, it will be a while before the whole country has smart meters, but we are determined that our smart meter programme should cover the entire country by the end of the decade. Clearly, that leaves some time and we cannot ignore what happens in the meantime.

In many cases, prepayment meters are installed to recover a debt. That element of a customer’s payment must be set at a level that takes into account their ability to pay. That is a point of universal agreement. Prepayment meters also enable customers to monitor and control their energy expenditure, and smart meters will play a valuable additional role.

I will, but I am running out of time and I had hoped to answer more of the points that have been raised.

I will be very brief. Understandably, the Minister has so far talked about the individual consumer. Does he commend the Welsh Assembly for including a specific fuel poverty reduction target in their campaign to reduce poverty in general in Wales by 2020? Would that be a course of action for his Government?

We do not just have a target; we have a legally binding obligation to deal with fuel poverty. In common with many other people, I have a slight degree of target fatigue, because targets do not get rid of fuel poverty: action, policy and committing to take measures and following them through get rid of fuel poverty. I am slightly sceptical that setting more targets is a good way of addressing something. The previous Government had a target, and fuel poverty relentlessly rose during the last Parliament. We need a Government who are committed to real solutions in the real world, and that is the hallmark of this coalition.

Given the levels of concern over the payment method, I am pleased that 80% of the fuel-poor do not pay for their energy via prepayment meters, and I do not want those households to find themselves subsidising others, either intentionally or unintentionally. The coalition shares the concerns of the hon. Member for Angus about the remaining 20% of the fuel-poor who pay for their energy through prepayment meters.

Since 2010, most suppliers have chosen to equalise their prepayment tariffs with standard credit prices, which is a major step forward. In the current system, licence conditions require suppliers to take into account the consumer’s ability to repay when setting instalments to repay gas and/or electricity debt. That allows consumers or their advocates to come to an individual agreement with suppliers that fits their circumstances.

Clear communication is the key to compliance. An assessment of a customer’s ability to repay a debt should be verified through direct customer contact or through a third party, such as the citizens advice bureaux, which do such brilliant work. It is clearly important that consumers know how much they are repaying each week and when the debt will be repaid. The average level of debt owed by dual fuel consumers in 2011 was £728, so a family with an average level of debt agreeing to repay the debt at £5 a week on top of their consumption would know that the debt would be cleared within two years and eight months. Fuel poverty and a customer’s ability to pay their energy costs are among my Department’s top concerns.