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Additional Charges for Utility Bills not Paid by Direct Debit (Limits)

Volume 575: debated on Tuesday 11 February 2014

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to limit levels of additional amounts charged by utility companies on bills not paid by direct debit; and for connected purposes.

The purpose of the Bill is very simple. Energy companies should not charge people excessive amounts for the energy they use just because of how the consumer prefers to pay. Energy bills continue to rise. Gas bills have gone up by 43% since 2007. Many families are struggling to pay the high prices. To the Government’s credit, they have taken some important steps to help ease the pressure, such as forcing companies to put customers on the lowest possible tariff, providing a rebate to every domestic electricity customer, and reducing bills by £130 for 2 million of the poorest householders who are most in need.

One month ago, a pensioner in my constituency told me that her energy company had written to her to say that she would be charged an extra £63 per year unless she started paying by direct debit. She has always paid on time. Her relative then tried to pay online, but was charged the same amount, giving the lie to the reasons given by the energy companies of there being an extra administrative charge. I spoke to the energy company concerned, which told me that it charges less than most other companies, so I looked into all energy companies across the UK. Out of 26 companies that responded, five allow their customers to pay only by direct debit, while 17 charge their customers different rates, depending on the method they use to pay. Only four companies charge their consumers the same whether they pay by direct debit or not.

The companies involved say that they have to charge more due to increased costs, and all reasonable people would accept that there will be additional costs and genuine administrative charges if someone does not pay by direct debit. I had a meeting with the Post Office, however, which said that the administrative charges of sending out a bill should not amount to more than 19p per head. Some companies have added not 19p but as much as £390 more to the bills of those not paying by direct debit, and the average charge was around £80 more per year.

Figures from the Department of Energy and Climate Change show that people who do not pay by direct debit tend to spend £114 more per year, and those who use a prepayment meter even more than that. Even worse, many of the companies that charge extra did not say they were adding a surcharge, but rather that they were “discounting” the bills of those who use direct debit because they incur lower costs. That is a bit like calling a mortuary a negative patients output.

Although many people do not pay by direct debit, they are often among the most poor and vulnerable. Since starting this campaign, I have been inundated with letters from pensioners who have told me that they are hit by these extra charges. They all pay on time, but they do not like direct debit as they feel it does not give them control over their finances. They say that they put their money aside and do not want to get into debt by overspending. It is not just pensioners—anyone on a limited income might feel the same—and with the recent financial crisis in mind, that is exactly the sort of personal responsibility we should be encouraging. Some people do not have access to proper banking facilities and are therefore unable to take advantage of certain payment methods. Nearly 2 million households in the UK do not have access to a bank account that has an overdraft facility, and half a million of those do not even have access to a basic bank account that can accept direct payments. Those households are vulnerable and have extremely limited options over how they pay. It is wrong that they should be penalised.

The energy companies say, first, that their charges are cost reflective, and they back up that claim by saying that it forms part of the conditions of their licence. As I have said, I have no problem with a small administrative charge to reflect the extra cost that companies face for processing a cheque, but I do not believe that the £390 charged by Spark Energy, despite my conversations with it, is in any way reflective of the cost of sending out paper bills. Although the market has since changed, it is worth noting that in 2008 Ofgem stated in a report that the annual cost to companies of a standard credit customer was just £25 higher than a direct debit customer. Even then, it expressed concerns that those charges were not proportional.

Secondly, energy companies say that they need to charge more because of the extra cost of providing credit to customers. If something is paid for retrospectively there will, of course, be an extra cost, but many companies that charge for services retrospectively charge customers far less for not paying by direct debit than energy companies —for instance, BT charges £24 a year. Furthermore, companies should be able to meet some of these extra costs themselves, and those currently paying for their energy by direct debit often pay too much. Figures from Go Compare show that one in five accounts of energy consumers are more than £100 in credit. Energy companies sit on that money and gain significant interest from it. That does not take into account the extraordinary profits that some energy companies have been making, and I am glad that the Minister is looking into their profit margins.

The third argument is that the difference in price is due to the discount that energy companies offer to customers who pay by direct debit. As I said, however, it is not a discount; it is a premium on the 45% of people who do not pay by direct debit.

The fourth argument is that those who do not pay by direct debit are more of a credit risk. Depending on the company, about half of the premium of not paying by direct debit is made up of paying for bad debt. Is it just that those who always pay on time, such as the elderly constituent I mentioned, have to pay for other people who are late payers or who do not pay on time? Furthermore, this argument cannot be used for those who use prepayment meters, and therefore pay in advance.

Finally, there is the argument that introducing a cap will result in prices increasing for everyone. I believe in competition and I welcome the fact that the Government have extended competition in the energy market. I do not believe that prices will increase. In fact, since Members across the House began to conduct this campaign, First Utility has announced, only last week, that it is dropping its price for people who do not pay by direct debit from £96 to £24; in essence, to my recommended £2 a month, but with no price increase elsewhere.

In conclusion, the Bill calls for a thorough investigation by the Government and Ofgem into what has been going on; real transparency for consumers, so that consumers can understand why they are being charged so much if they do not pay by direct debit; and a cap of about £2 a month on the amount that companies can charge. I commend the Bill to the House.

I commend my hon. Friend the Member for Harlow (Robert Halfon) for his campaigning zeal and for bringing to light another issue that has much popular support. He is renowned for such campaigns. I guess that if I am renowned for anything, which probably is not much, it is probably for sticking up for unpopular and unfashionable causes. Hence, I felt that the other side of this particular argument deserved a hearing.

First, I want to look at what is covered in the Bill. The motion refers to utility bills, but my hon. Friend seems to have concentrated on energy companies. I do not think he believes there is an issue in relation to water companies, and he praised telecommunication companies, so I presume the Bill is about energy companies. Looking at the Monopoly board, I cannot think of any other utilities that it could apply to, if it does not apply to water and telecommunications.

My hon. Friend’s motion refers to additional amounts charged for paying by direct debit. As I understand it, however, the difference in amounts is actually a discount for paying by direct debit, rather than an additional charge for paying by alternative methods. This is an important point, because the presumption is that if the gap were narrowed between paying by direct debit and paying by other means, that would inevitably mean that the costs would be levelled down. It is quite possible, however, that if we prevent these discounts, the cost to consumers will be levelled up and nobody will be better off. We will find that people paying by direct debit are made worse off, and I do not think that is particularly helpful to anybody.

The reduction for paying by direct debit is lauded by many people, including the regulator Ofgem, as well as consumer rights champions, such as Martin Lewis of and Which?, which states:

“The cheapest way to pay for energy is almost always monthly direct debit, as most energy companies offer a discount to those who pay for energy in this way.”

The benefits of direct debit payment are widely accepted. For example, councils in London, including, I think, Islington and Westminster, have offered council tax payers the chance to win £25,000 simply for switching to payment by direct debit. There are good reasons why direct debit payments are encouraged. They help with monthly budgeting, especially in these difficult times, and avoid the need for people to find bigger amounts of money in one go. They reduce the risk of the customer being cut off for non-payment and having to face huge penalties, or even the bailiffs, for not paying their bills on time. They save the provider extra costs incurred administering the payments and the debts that build up on accounts, which ultimately they have to pass on to someone, whether through increased bills or the loss of staff. Paying by direct debit is probably the easiest, quickest and cheapest way for people to pay, and companies and councils should be free to encourage this practice with monetary incentives if they wish to do so.

I think that my hon. Friend’s proposed Bill is unnecessary, because the power is already there to do what he wishes, should the regulator wish to use it. I think he mentioned this briefly. Ofgem writes:

“Ofgem has introduced new rules which prohibit undue discrimination between consumers. One of these rules ensures that terms and conditions for energy supply do not treat any group of customers differently without justification. The other rule requires that any difference in price between payment methods offered by a supplier should reflect the costs they incur for providing that payment method.”

It seems to me, therefore, that we do not need a new law along these lines. He merely needs to ask Ofgem to do its job properly, if he feels it is not already doing that, by enforcing the existing rules. The power is already there; we do not need a new law to do what can already be done.

My hon. Friend talked about people who pay bills promptly and who should not be penalised for not paying by direct debit. I agree wholeheartedly. In the past, some companies, including British Gas, offered their customers a prompt payment discount, no matter how they paid their bill—even if they paid other than through direct debit—but that discount was scrapped because Ofgem insisted on it as part of its retail market review. If he wants to help customers who choose to pay other than by direct debit but who are good customers who pay promptly, he should encourage the regulator to allow companies to reintroduce the prompt payment discount, which many used in the first place. That would be of great help to many of the customers he wishes to target with his Bill.

Many things get on my nerves in this House, but what does so more than most is politicians—I do not include my hon. Friend in this criticism; it is directed at others—who complain about excessive energy bills and talk about fuel poverty and how disgraceful it is that people have to pay so much for their energy, when they are exactly the same people who piled extra costs on to people’s energy bills by passing law after law pursuing some climate change ideology. Most energy bills nowadays contain more than £100 a year simply because of the policy decisions made by the same people who complain that energy bills are too high and should be reduced by about £100. That nerve and hypocrisy is the type of thing that does politics no credit whatsoever and makes my blood boil.

I want lower energy bills. That is why I am proud to have been one of the five MPs who voted against the Climate Change Act 2008 in the previous Parliament. It certainly is not becoming for the Leader of the Opposition to claim to be the friend of people who pay energy bills when he did more than most to bump up energy bills with his Climate Change Act. Funnily enough, the £113 typically added to bills by climate change policies is roughly the same as the average discount given to people paying by direct debit. If we want to reduce everybody’s bills by the £113 that my hon. Friend seeks for people who pay other than by direct debit, the easiest way to do it would be to scrap all this nonsense on climate change—this gesture politics that will not make a blind bit of difference to global temperatures, but which makes a massive difference to people’s energy bills.

On that basis, I commend my hon. Friend for bringing this matter to the attention of the House, but on the whole it is undesirable and certainly unnecessary. I do not intend to divide the House, but I thought it was worth while ensuring that the alternative view was at least heard so that people can make an informed decision about whether, after all of that, they agree with his Bill.

Question put and agreed to.


That Robert Halfon, Tracey Crouch, Jackie Doyle-Price, Charlie Elphicke, Stephen McPartland, Albert Owen, Mark Durkan, Lady Hermon, Mr Elfyn Llwyd, Ian Swales and Henry Smith present the Bill.

Robert Halfon accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 28 February, and to be printed (Bill 173).