Prepayment Meters

Hywel Williams Excerpts

Tuesday 11th June 2013 Westminster Hall

[Mr Weir]

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.

[Hywel Williams (Arfon) (PC)]

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?

[Mr Weir]

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.

--- Later in debate ---

[Gregory Barker]

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.

[Hywel Williams]

Will the Minister give way?

[Gregory Barker]

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

[Hywel Williams]

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?

[Gregory Barker]

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.