Pre-payment Meters

Andrea Leadsom Excerpts

Tuesday 1st December 2015 Commons Chamber

[The Minister of State, Department of Energy and Climate Change (Andrea Leadsom)]

I genuinely congratulate the hon. Member for Brent Central (Dawn Butler) on securing this debate on the cost of pre-payment meters. I can assure her that the Government are committed to helping households with their energy bills, and a great deal of the focus in my Department in recent months has been on how to reduce consumer bills for everyone. It is an incredibly important point, and the hon. Lady has made it well.

We know that it is often some of the most vulnerable in our society who can end up with a pre-payment meter. While we are working with Ofgem to provide greater support specifically for those consumers—I will come on to exactly what we are doing on pre-payment meters—it is also important to point out that we have also implemented a range of measures to help vulnerable households to reduce their energy bills, including the warm home discount scheme, which provides direct assistance on energy bills to more than 2 million low-income and vulnerable households each year.

The Government are also determined to help vulnerable consumers take advantage of the best deals available. We know that many vulnerable consumers need additional help and advice to engage with the market and take action to switch and save. That is why DECC has been providing nearly £3 million over the last three years to fund the big energy saving network. The network is designed to help vulnerable consumers take action to reduce their energy costs, with around half of participants reporting that they now spend less on heating their home because of their engagement with the network. It has reached around 220,000 people over the last two years, and we aim to reach a further 100,000 vulnerable consumers this winter.

Helping people to insulate their homes is one of the best ways to help keep energy bills down; 1.3 million homes have benefited from energy efficiency measures, such as insulation and efficient boilers, under the energy company obligation between January 2013 and September 2015. The current phase of ECO will run to March 2017, but in the spending review the Government announced a long-term successor to ECO that will continue for an additional five years from 2017, at £640 million a year, rising with inflation. That new supplier obligation will run from April 2017 to March 2022, reducing the impact of the obligation by around £30 for the average household from 2017-18, compared with current projections. It will also upgrade the energy efficiency of well over 200,000 homes per year, tackling the root cause of fuel poverty. We will set out our plans for the scheme early in the new year.

The hon. Lady has raised a very important issue. A significant proportion of households—about 17%—use pre-payment meters. Although not all pre-payment meter consumers are financially vulnerable, more than 60% of those meters have been installed as a result of debt. For some consumers in difficult circumstances, they offer an alternative to disconnection for non-payment of energy bills, although we recognise that those consumers would rather not be in that situation. Still others prefer pre-payment meters because they find that that allows them to budget for their energy expenditure and to keep track of what they are using. Consumers can build up credit in the summer months to reduce their expenditure over the winter.

We know that paying by pre-payment can be more expensive than paying by direct debit. That is because there are further costs to install pre-payment meters, as well as additional services provided. But there are safeguards in place to prevent suppliers from charging unjustifiably high tariffs for a particular payment method. Suppliers are required to ensure that differences in charges really reflect the costs they face to provide that payment method. Across the market the cost of paying for the energy by pre-payment meter is similar to the cost faced by customers paying by standard credit.

The majority of suppliers offering pre-payment meters do not charge when consumers agree to the installation. That includes the big six energy companies. Other companies, however, as the hon. Lady points out, do pass on the charges they incur from meter operators for installation. These consumers can also face costs to have the meter removed, once they are able to go back to having a credit account. That cost, on average, is between £160 and £180. Ofgem is currently working with suppliers to identify and extend good practice to end charges for installing and removing pre-payment meters.

What should suppliers be doing? We expect to see suppliers meeting the obligations under their licence only to install pre-payment meters where it is safe and reasonably practicable for the consumer to use a pre-payment meter. Suppliers must take into account a customer’s ability to repay when setting instalments to repay gas and/or electricity debt. I am pleased to say that there is evidence to suggest that suppliers are fulfilling this obligation: first, Ofgem keeps weekly repayment rates under review, and they have fallen on average in recent years; and, secondly, the majority of indebted customers are on standard credit, not pre-payment meters, and repay through a variety of means, which suggests that repayment is indeed being tailored more to suit the needs of individual customers.

We know that some customers who are concerned about their energy bills will self-disconnect by deliberately choosing not to top up, meaning that their supply will stop. In those circumstances, it is vital that they seek help from their supplier as soon as possible. I expect suppliers to have in place appropriate arrangements to protect their most vulnerable consumers, and systems to identify any potential problems so that they can be rectified early. The hon. Lady made that point very well.

[Dawn Butler]

I want to make a couple of points. The rate of complaints about energy companies has increased exponentially because they are not taking into consideration the circumstances of vulnerable people who are unable to heat their homes. With regard to switching, people on pre-payment meters have very little to switch to, so the benefit to them is about 8%, whereas the benefit for those on direct debit is about 22%.

[Andrea Leadsom]

I am grateful to the hon. Lady for raising those points. I will certainly look into her first point: she believes there is evidence that suppliers are not taking into account individual circumstances. As I said, I expect suppliers to have appropriate arrangements in place. If she wants to raise individual cases with me, I will look into them. I can tell her that today a dual fuel pre-payment consumer with average consumption living in London could save about £130 by moving to the cheapest dual fuel pre-payment deal in the market. There is merit in switching and I urge all consumers, including those on pre-payment meters, to shop around.

My absolute focus remains on getting the best deal for consumers. I expect suppliers to treat their consumers fairly and we expect suppliers to make sure that any reductions in the costs of supplying energy are passed directly to consumers. Strong competition in the energy supply market is the best way to keep prices down. The Government are committed to ensuring that the market works effectively for consumers.

[Chris Stephens]

I want to come back to the issue of self-disconnection. Have there been any discussions with her Department and the Department for Work and Pensions about emergency help that can be given to someone in those circumstances?

[Andrea Leadsom]

Those conversations happen regularly. I will write to the hon. Gentleman with any specific changes that we intend to make or consult on. I absolutely assure him that suppliers are required to take into account consumers’ specific circumstances. Ofgem is looking into the cost of having pre-payment meters removed and whether that should continue for pre-payment consumers.

I move on briefly to the investigation into the retail energy market currently being conducted by the Competition and Markets Authority. The CMA published its provisional findings and remedies in the summer. It found that customers on standard variable tariffs are being charged unjustifiably high prices; the majority of pre-payment customers, of course, are on those standard variable tariffs. We are committed to acting on the CMA’s recommendations and to ensuring fair prices for all consumers, including standard variable tariff customers using pre-payment meters.

The CMA also found that pre-payment customers have fewer tariffs to choose from than customers paying by direct debit. There are indications, though, that that is beginning to change. We are starting to see the development of smart pre-pay meters. E.ON is currently piloting a smart pay-as-you-go tariff for consumers using a smart pre-payment meter who then pay the same prices as the company’s standard credit customers. It expects to make the tariff more widely available to new and existing customers from next year.

With OVO’s pay-as-you-go tariff, pre-payment meter consumers receive an in-home display that enables them to see how much energy they are using and when, and how much credit they have left. Consumers can also add credit to their pre-payment meter anywhere via app, text or online. We are also seeing examples of good practice by suppliers. For example, there is SSE’s support for its vulnerable pre-payment consumers that includes monitoring those on the priority services register to identify self-disconnection. The company will then call the consumer to check the situation and to make the offer of extra assistance, where appropriate.

The Government have a manifesto commitment to

“ensure that every home and business in the country has a Smart Meter by 2020, delivered as cost effectively as possible”.

The roll-out of smart meters is an important national modernisation programme that will bring major benefits to consumers and the nation as a whole. Domestic customers will be offered an in-home display enabling them to see what energy they are using and how much it is costing.

Smart meters have the potential to transform the experience of being a pre-payment customer. Customers can top up more conveniently through a range of channels. Topping up smart meters in pre-pay mode should become as easy as topping up a mobile phone. They are likely to herald greater and cheaper tariff choices for these customers, as the cost differential will be reduced. Smart meters will enable energy suppliers remotely to take action to avoid disconnection—for example, through switching consumers to credit mode, setting non-disablement periods, and configuring debt recovery amounts to be small.

A customer’s ability to pay their energy costs while keeping warm is among the top concerns of my Department, and we are fully committed to tackling these issues through a range of innovative policies. I thank the hon. Lady and the other hon. Members who contributed to this very important debate.

Question put and agreed to.