Prepayment Meters

Lord Barker of Battle Excerpts

Tuesday 11th June 2013 Westminster Hall

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

I congratulate the hon. Member for Angus (Mr Weir) on securing this debate on fuel poverty and the use of prepayment meters. He is an acknowledged champion in this place of the fuel-poor, and from my time on the Select Committee on Environmental Audit I know of his personal commitment and professional expertise. Whenever he speaks on the subject, we listen carefully and thoughtfully even if we do not always agree. I reassure him that the coalition Government are committed to helping hard-working families and consumers with the rising cost of living. We recognise that the rising cost of energy is currently one of the biggest worries for householders.

The modest fall in the number of households living in fuel poverty was confirmed in April. The latest figures show that in 2011, 4.5 million households in the UK were in fuel poverty. That was a slight decrease from 4.75 million in 2010, which saw the first fall in the number of fuel-poor since 2004. Throughout the last Parliament and for a couple of years before, there was an inexorable increase in the number of fuel-poor. Despite the modest falls, encouraging as they are, there is absolutely no room for complacency. The figure is still far too high and we are honest enough to realise that some of the problem is beyond the Government’s control. The steady growth in the number was driven primarily by increases in the wholesale price of gas. There is a direct correlation not between the sympathy that the Government of the day feel for the fuel-poor and the rhetoric they employ, but between the wholesale cost of gas and the price of energy that people must pay. We must do more to decouple that link and to cushion consumers from the international gas markets.

[Mr Weir]

I do not disagree with what the Minister has said so far. He is correct about what is driving rising fuel prices, but does that not make it imperative that the Government adopt the little things I suggested to ameliorate the situation? It is all very well talking about wholesale gas prices, but it is the people at the sharp end who are suffering them. My suggestions would not solve the problem, but they would ameliorate the situation for those vulnerable people.

[Gregory Barker]

The hon. Gentleman made several points that I hope to cover, but I want to set out the framework and the context in which we must operate. Of the 3.2 million fuel-poor households in England in 2011, around 20% paid for their electricity and 24% paid for their gas with prepayment meters. Many hon. Members and certainly members of the public will be surprised that the figure is so low, because there is often an assumption that “fuel-poor” and “prepayment meter” are synonymous. In fact, only a relatively small number of the fuel-poor—20%—are on prepayment meters. Prepayment meters enable customers to monitor and control their energy expenditure in a direct and immediate way and, as a last resort, they can be a valuable alternative to disconnection for non-payment of bills.

Where 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. The hon. Gentleman rightly says that there must be an equitable balance in such situations between debt repayment and the real ongoing needs of a household to cook, to heat the home to a safe level and to light the premises, particularly where there are children, or elderly or vulnerable people. It is understandable that he seeks a cap for weekly payments. Customers in debt repay a fixed amount at fixed intervals—for example, weekly. The amount repaid is calculated for each customer based on their personal circumstances and their ability to pay. He asked what would happen if their circumstances changed. In those cases, customers should talk to their supplier about the change and how it may impact on their ability to repay debt.

I recognise that a percentage repayment, such as 20% of the amount spent, may feel fairer, and that fixed payments can be a blunt instrument, but there are two sides to the coin. There is a risk that setting a percentage limit may create a floor rather than a ceiling. It may encourage suppliers to use the limit as the automatic default position rather than, as they do now, individualised payment plans, which are surely in everyone’s interest.

The hon. Gentleman makes the valid point that in some cases customers may feel that they are set an inappropriately high debt recovery level. If that is the case, they need to speak to their supplier. If that does not satisfy them, they should speak to Ofgem or the energy saving advice service, which is run by the Government, for further advice on what to do.

[Mr Weir]

Does the Minister not accept that if Citizens Advice Scotland is coming across rates of 70%, where £7 in every £10 goes towards paying down the arrears, something is seriously wrong? It is not just one case; Citizens Advice Scotland cites several. That cannot be right.

[Gregory Barker]

I agree with the hon. Gentleman that it does not seem right, but I am not aware that it is the norm; it is the exception and if he is aware of such cases, I encourage him to take them up. I want to know more about the individual circumstances of the household and how the debt built up to such a level. We cannot have a situation where we ignore moral hazard and certain households do not feel an obligation to repay debt, because that penalises and is unfair to those on low incomes who struggle to pay their electricity and heating bills on time. We simply cannot give away heating when their next-door neighbours are struggling hard to do the right thing and pay the bills. There is a balance of fairness to be met.

[Jim Shannon]

In an intervention, I made a point about the administrative costs of the keypad system in Northern Ireland. It is cheaper than the system on the UK mainland in England and Wales. Is the Minister prepared to consider that system? If we could reduce administrative costs, it would be a factor in the saving for the consumer.

[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.

[Mr Philip Hollobone (in the Chair)]

Order. The meter has run out, and the debate has to be switched off.