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Prepayment Meters: Pricing

Volume 824: debated on Tuesday 11 October 2022


Asked by

To ask His Majesty’s Government what steps they are taking to ensure that individuals and families who pay for their energy through a prepayment meter are not paying the highest unit prices.

My Lords, in begging leave to ask the Question standing in my name on the Order Paper, I declare my interest as director of Generation Rent.

My Lords, prepayment customers will benefit from both the energy price guarantee and the Energy Bills Support Scheme. Under the energy price guarantee, a typical household in Great Britain will pay around £2,500 a year on their energy bills from 1 October 2022. There will continue to be a small difference under the energy price guarantee between the unit cost for a prepayment meters and other types of payment methods to reflect higher costs to serve those customers.

My Lords, using a prepayment meter is the most expensive way to pay for your energy, yet they are most likely to be used by the households least able to afford to heat their home. To cope, these families severely cut back on the energy they use, but their efforts are diminished because of the impact of the rise in standing charges, which remain the same regardless of the energy used. So I ask the Minister two things. Will the Government insist that there is a winter truce on energy suppliers forcing families already struggling to pay their bills to use prepayment meters to clear their debt? Will the Government make it clear to Ofgem that the continuing ratcheting up of standing charges to cover costs over and above what the standing charge should cover is unacceptable?

I am afraid that the noble Baroness is incorrect: using a prepayment meter is not the most expensive way of paying for your gas and electricity. Actually, normal credit is the most expensive way. The cheapest way is direct debit; slightly more expensive is prepayment; but the most expensive way is credit. The problem with what the noble Baroness is saying is that if we were to equalise the charges, and there is actually a higher percentage of customers who are fuel poor who are paying by direct debit, they of course would have to bear increased costs to take account of any reductions for prepayment customers.

My Lords, will the Government ensure that all children and seriously ill adults in receipt of the new SR1 benefit and being cared for at home are moved to the lowest energy cost tariff, irrespective of the type of meter and system of payment in place? Will the Government ensure that they are provided with emergency supplies in the event of any power cuts in their area, particularly in the winter, as power to their equipment, such as home ventilation, oxygen concentration and so on, is absolutely essential to their care at home?

The noble Baroness makes a very important point. Obviously, we are doing everything we can to make sure that there are no blackouts, but if that very unlikely eventuality comes to pass, of course we will want to do all we can to make sure that the most vulnerable are protected.

My Lords, I am sure the Minister will agree that although the situation now with the differential is not as extreme as it used to be, we could easily go back to a situation in which those on prepayment meters will be paying the highest tariff. If the Government were minded to, they could easily remedy the situation; for example, simply by removing the ability of Ofgem to set differential rates for people with prepayment meters. If they did that, that would sort the problem. Does the Minister agree that this would do the job and would get rid of the injustice whereby the poorest are being asked to pay the most?

I refer the noble Baroness to the Answer I gave earlier: using a prepayment meter is not the most expensive way, and many customers choose to do it for their convenience. The licensing conditions for Ofgem reflect the cost of serving different groups of customers. Of course, we keep these matters under review, but if we equalised it, then those paying by direct debit—often those who are fuel poor as well; there is a higher percentage of customers on that level —would end up paying more. There are no easy answers to this.

My Lords, does my noble friend not accept that it is all very well talking about those people paying on direct debit, but we are talking about people who, if they have a bank account, are probably overdrawn and are certainly not in a position to do so? I pay by direct debit, but I do not understand why my standing charges, which are a major part of the costs, are going up as well as the energy costs. At a time when the Government are giving huge support to consumers and therefore to the utilities themselves, which would otherwise be facing severe financial difficulty, do we not have a bit of leverage and can we not speak up for those people struggling to pay those bills?

We are helping those struggling to pay bills; I refer the noble Lord to the massive programme of support that we have put in place. These charges are set by Ofgem. I am aware that the standing charge is a controversial subject, but that reflects the network costs and other costs that every customer has to bear in addition to the unit costs of gas and electricity.

My Lords, there are 4 million prepayment energy customers in this country whose bills are not smoothed out over the year, unlike those who pay by direct debit. Ofgem figures show that prepayment customers are likely to pay two-thirds of their annual energy costs during the winter. What immediate measures will the Government take to help relieve pressures on these hard-pressed energy customers?

The answer to the noble Lord’s question is the massive programme of support we have put in place, which amounts to about £60 billion of direct payment support. Had we not put these measures in place, the average unit cost would have been about £6,000 per year; now it is down to an average of £2,500 per year. I emphasise that that is not a maximum but an average of the unit costs of energy that are capped under the price guarantee.

My Lords, is the Minister aware that renewable energy is nine times cheaper than fossil fuel energy? If there were not an anti-science coalition in the Conservative Party—including previous Prime Minister Cameron, who said to cut the green “stuff”—bills would not be as high and we would not be in this mess now.

Happily, on this matter I can partly agree with the noble Baroness, which will shock her. Some renewables are considerably cheaper than gas- fired generation, although it varies—we are experiencing a price spike in gas at the moment. That is one of the reasons why we have in place the largest programme of offshore wind in Europe; we have the second-highest level in the world, and it is something we want to ramp up greatly, to 50 gigawatts by 2030, because at the moment it is the cheapest form of generation.

My Lords, to return to the question asked by the noble Baroness, Lady Finlay, I thank the Minister for saying that the Government will do all they can to provide a secure electricity supply, particularly to seriously ill disabled children who may be using ventilators and other equipment. My family has experience of this; when there was a cut on the south London estate where my three year-old granddaughter was—she had to have a ventilator and a heart monitor—it took over three hours before the generator arrived, even though she was on the list. The scale of the cuts, if they happen, will be of a different magnitude. It is an enormous undertaking, so I would be really grateful if the Minister could make sure that this facility is available to not just children but other people who use this life-saving equipment at home.

Of course I can give the noble Baroness that assurance; we will do all we can to protect the most vulnerable. We all recognise the difficult circumstances that such people would be in, but our top priority is to make sure that there are no interruptions to supply at all. That is one of the reasons why we are ramping up efforts to make sure that we have enough energy to serve the UK this winter.

My Lords, those renting from private registered landlords often have little choice about how they pay for their energy. I am thinking in particular of students in houses of multiple occupation, many of whom are faced with very large bills indeed. Are landlords in that situation obliged to pass on any government subsidies to those students?

We certainly encourage them to do so. We are looking at the upcoming legislation, which the House will consider shortly, to ensure that not just people in situations such as houses of multiple occupation but also those on heat networks, those in temporary accommodation, et cetera, get the reduction passed on to them.

My Lords, is it not the case that once again the regulators are failing the public? Is it not about time that the regulator in this case looked at standing charges again and did something about them?

I assume the noble Lord is referring to Ofgem. I can assure him that it looks very closely at the balance between standing charges and individual units, but the network has to bear certain standing costs, which are independent of individual units of gas and electricity. We talked earlier in this Question about the expansion of renewables. Of course, the expansion of renewables involves enormous changes to the structure and operation of the grid to make sure that that power can be transmitted around the country, and that has to be paid for.

My Lords, my noble friend will be aware that those living in rural areas pay the highest cost of fuel, which is not covered by the price cap. I am thinking of oil, solid fuels and LPG. What plans do the Government have to extend the price cap to these fuels to help those living in rural areas, particularly in the north of England and other parts of the country where it is particularly cold in the winter?

Of course, a number of people across the country live off the gas grid and use oil, LPG, et cetera. The noble Baroness is right that in most cases they benefit from the electricity cap, but they do not benefit from the gas cap. We are looking at how they can be assisted. We have a commitment that they will receive an equivalent level of support and we will ensure that that is the case.