Energy Company Charges

Ian Swales Excerpts

Tuesday 4th February 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

I add my congratulations to the hon. Member for Harlow (Robert Halfon), who has led the charge, and to all the other Members who supported his motion today. The debate has already shown that there is no monopoly of concern in one part of the House—we are all concerned about this. I heard the calls for extra analysis of the issue, but there is no doubt that we are talking about an issue that largely affects the poorer part of the community. We could analyse it to death, but we all know intuitively what is going on.

I worked in the electricity industry way back in the 1970s. I was probably around at the start of the discount for direct debit schemes. We always used to do our marketing campaigns in the spring. Why? Because that allowed us to pile up credit through the summer, which helped to finance the business. There is no doubt that companies are doing that. We always used to aim to hit the exact average over the 12 months, but some companies seem to be looking to build up credit over the 12-month period by assuming extra usage. That practice ought to be stopped. Back in those days we used to give people an incentive of £2 or £3 a quarter for paying by direct debit. I am staggered by the size of the so-called incentive that is around now. It seems to be way out of line with any measure of actual costs. Of course, we have additional things now, such as discounts for online bills, which can add up to a fair amount, so there are many ways in which those without direct debit facilities or the internet are being penalised.

However, I want to follow on from the previous speaker, the hon. Member for Makerfield (Yvonne Fovargue), who made a good speech about prepayment meters. Rather like the hon. Member for Harlow, I had this issue brought to my attention just a couple of weeks ago. I was aware there was an issue, but I did not know how big it was until a constituent of mine called Frank Harrison claimed he was spending an extra 25% by having a prepayment meter. I found that staggering, but sure enough, when I did a bit of digging, I found that that was roughly the figure. I heard the figure of £100 from Citizens Advice. However, I have checked the three biggest comparison websites, which estimate the difference at between £160 and £300 extra for having a prepayment meter, and we are talking about people who largely cannot afford any extra.

I understand the history. As an accounting trainee, I remember going round with a meter collector with gigantic bags of silver coins, which he had to keep shipping to a bank. The costs of prepayment meters used to be serious when somebody had to be sent round collecting money frequently. However, we do not have that now; we have pre-payment cards. The risks of default are minimal. Prepayment meters also used to be a big target for theft, but not any more, and the energy companies are getting their money in advance, so the excuse that the costs of prepayment meters are much higher starts to fall away, given that people have to pay for the energy before they use it. Therefore, by definition the bad debts will be nil.

I join other Members in calling for transparency. It is inexcusable that these companies appear to be able to differentiate however they like, whenever they like and to any degree they like. The concept of a cap, which we heard about from the hon. Member for Harlow, is an extremely good start, but I would like to go further. Through policies such as the energy company obligation, the Government already require energy companies to do things—in that case to do with insulation—for the poorer sections of the community. Given the cost of energy, it is high time that companies were required to do more—to get involved not just in insulation, but in levelling the playing field between different methods of payment, particularly when it comes to prepayment meters, and to bring down the direct debit difference, if it is to exist, to a very low level. I would favour the Government saying, “Along with the ECO, we expect you to provide the lowest cost tariffs, whatever the method of payment.”

[Jake Berry (Rossendale and Darwen) (Con)]

I am sure that, like me, my hon. Friend would want to publicise the fact that uSwitch now offers a paper switching service. Some of the people on the most expensive tariffs can be the elderly and the vulnerable—the people least likely to want to go on the internet to change user. This excellent debate initiated by my hon. Friend the Member for Harlow (Robert Halfon) is a good opportunity to publicise uSwitch’s paper switching campaign.

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[Ian Swales]

I would not necessarily want to support any particular commercial organisation, but I recognise the bid that the hon. Gentleman makes and I certainly support the idea of switching. He is absolutely right that anyone who wants to get the best deals these days has to have a bank account—and pay by direct debit—and has to be online to get the discounts and switch easily. They certainly do not want to have a prepayment meter. All that militates against the poorest part of our community.

[David Mowat (Warrington South) (Con)]

I agree with my hon. Friend that the current practice militates against the poorest people. His example of the ECO is rather a good one, because it involves the Government putting the onus on companies to do something. The only thing that bothers me a little, however, is that what is being suggested might imply a levelling of the bill upwards, as it does with the ECO, although that might be a reasonable thing to happen.

[Ian Swales]

What I am suggesting is really an averaging process. We expect better-off consumers effectively to pay for various measures nowadays, and I think we should ensure that they help the poorer members of the community in this instance by levelling the playing field between the different tariffs. I hope that the Minister will respond to that suggestion.

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[Sammy Wilson (East Antrim) (DUP)]

I congratulate the hon. Member for Harlow (Robert Halfon) on securing this debate through the Backbench Business Committee and on the work that he has done on this issue. When we consider the impact of rising energy bills on people across the United Kingdom, every aspect of those increases should be closely examined.

Northern Ireland has one of the highest levels of energy bills, and we have certainly had the highest increases in recent years. That is the result of a range of issues, including the green energy policies of central Government that add £100 a year to energy bills. On top of that, perverse incentives lead to direct debit increases for consumers.

That all hits Northern Ireland in a number of ways. First, we have the lowest percentage of people in the United Kingdom paying by direct debit—38% as opposed to 55% across the rest of the UK. There are many reasons for that, including a more conservative approach to such things. Fewer people have access to bank accounts and the remoteness of many rural areas means many people cannot pay online. In my constituency, a huge programme is trying to connect people to broadband because of the low level of coverage for thousands of households. Those in remote areas, especially those in the Antrim plateau, do not even have broadband as an option. As a result, 42% of people in Northern Ireland live in fuel poverty. That is exacerbated by perverse incentives that affect how energy bills are structured.

[Ian Swales]

The hon. Gentleman is talking about perverse incentives. Does he agree that people who have access to the internet and pay by direct debit are those who are most likely to switch, which means that the energy companies have a perverse incentive to give them the lowest tariffs to try to keep them?

[Sammy Wilson]

They do. The hon. Gentleman makes a very important point, and in most cases those people have the greatest ability to pay for electricity. In Northern Ireland, for example, those who cannot pay by direct debit or online will pay £55 more a year for their energy bill. That is about half the increase they pay as a result of the green subsidies consumers must pay to the energy companies.