Prepayment Meters and Fuel Poverty

Lord Barker of Battle Excerpts

Monday 20th January 2014 Commons Chamber

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

I congratulate the hon. Member for East Lothian (Fiona O’Donnell) on an excellent maiden Adjournment debate—I believe she said it is the first time she has secured one—and may I say upfront that she raised some sensible and pertinent points that I take very seriously? I doubt that I will be able to answer all the points she has raised—[Interruption.] The hon. Lady asks whether I will write to her. She has made a serious and sensible speech tonight, and I would be happy to go further than simply writing to her. If she would like to take up my invitation to come and meet me and my officials, I will happily consider in more detail, face to face, the questions that she has raised. Not all her questions have convenient, pat answers. They bear further analysis, and she would be right to scrutinise further the answers she gets. There is undoubtedly a lot more to do on the problem—I am not complacent for a moment—but the fact is that we have finite resource to address it. We have made progress in recent years, but not nearly enough to be in any way confident that the problem is being defeated.

We are heading in the right direction and determined to do more, but, as the hon. Lady says, unacceptably high numbers of people are living in cold, damp and unhealthy conditions. That is why, for starters, the Government have introduced a new and more accurate measure of fuel poverty, and why, for the first time in many years, we will publish a fuel poverty strategy. That will happen later in the year. The strategy will be deliverable but, in addition, the public, the Opposition and parliamentarians from both sides of the House can hold the Government to account on delivery.

We continue to deliver the policies that we believe will make a difference in tackling fuel poverty this winter. The energy company obligation, which runs alongside the green deal, ensures that help goes to low-income and vulnerable households to help them to heat their homes and stay warm and healthy. New statistics will, I believe, be published tomorrow, but up to the end of October 2013 more than a quarter of a million measures were installed for people on low incomes, equating to around 220,000 households.

Colleagues will be aware of the proposed changes announced last year to the energy company obligation. They will result in savings of £30 to £35 in household bills on average in 2014. Those savings are part of a wider package of changes to green levies that is designed to reduce the cost of household bills by, on average, £50 a year. That will be welcomed by everyone, but particularly by the fuel poor, who must still pay those charges.

In respect of low-income and vulnerable households, I can assure the hon. Lady that the changes will not lead to any reduction in the intended level of support. Indeed, we want to provide longer-term certainty, so our consultation on the ECO changes will propose setting new targets for 2017, ensuring that the current annual scale of activity and ambition continues. In addition, the Government will use the consultation to come forward with further improvements to our fuel poverty schemes, with the aim of ensuring that greater help is made available to those fuel-poor households who are off the gas grid and living in rural areas.

I believe that the Government’s proposals strike the right balance between supporting the delivery of our critical energy efficiency agenda and limiting the cost borne by all customers, but especially those living in fuel poverty.

[Fiona O’Donnell]

I am aware that I have posed a lot of questions to the Minister, but could he answer one specifically? If the energy companies are not monitoring self-disconnection, how can he have a realistic picture of UK fuel poverty?

[Gregory Barker]

No Government to date have come up with a totally satisfactory answer to the self-disconnection question, and it is a problem. However, it is a relatively small part of the overall fuel poverty picture.

Let me clarify a point on fuel poverty and prepayment meters. The hon. Lady quoted me accurately, but my point was that the percentage of prepayment customers in fuel poverty—the latest year for which we have audited figures is, I am afraid, 2011—has continued to come down. In fact, fewer than one in five customers with a prepayment meter are defined as fuel poor. Not all those who have prepayment meters are fuel poor, and it is by no means true that the fuel poor all have prepayment meters—as I say, only about one in five do. It is not that I was trying to deny a link between the two—absolutely not. Of course there is a link. What I was pointing to is a larger problem. Quite often in this House, Members have assumed that by attacking the prepayment issue, we were really putting one’s hands around the fuel poverty issue. Unfortunately, it is only one of several concentric circles as far as fuel poverty is concerned. The hon. Lady is absolutely right to focus on prepayment customers as being vulnerable and worthy of further attention and support, but it is not correct to say that in so doing she is tackling the majority of fuel poor customers. I am glad to have cleared that up.

In addition to the energy company obligation, the warm home discount scheme requires more than 250,000 domestic customers to receive a discount on electricity bills. Typically, that is aimed at low-income and vulnerable customers. Some 2 million households this year will receive help under the warm home discount, including well over 1 million of the poorest pensioners who, in addition to the winter fuel allowance, will receive £135 off their electricity bills. The Government have also committed to extending the warm home discount in 2015-16, with an increased spend of £320 million. More than 1.16 million low-income households will receive that payment, and will do so, I am glad to say, without having to take any action. This is the result of data-matching undertaken by the Government and the seven largest energy suppliers. I am sure that the hon. Lady knows that accurately pinpointing who the fuel poor are and where they are has been a great stumbling block for this Government and previous Governments. We are making progress. Furthermore, the Department for Work and Pensions provides winter fuel payments and cold weather payments to help vulnerable households.

Finally, in 2013 the Government announced the creation of the Big Energy Saving Network. The network was established alongside existing advice to deliver a comprehensive package of advice and support, particularly to vulnerable customers, and has focused on helping them to reduce their energy costs through assisted action on tariffs, switching and take-up of energy efficiency offers. With total funding of £900,000, the network is supporting activity for more than 150 organisations. Some 500 volunteers from third sector organisations and community groups have been trained to provide advice and help consumers to take action.

I understand fully the point the hon. Lady made regarding manuals for prepayment meters, but for many customers a manual can often be daunting. I think the most effective thing is for one of the many volunteers, or people from the excellent organisations that are part of the Big Energy Saving Network, to be on hand to give helpful and supportive in-person advice on prepayment meters.

Of households that were fuel poor in England in 2011, approximately 25% paid for their electricity and 20% paid for their gas through prepayment meters. That compares to 13% and 10% among non-fuel poor households. Clearly, prepayment is more common among poorer households, but the relationship is far from absolute. They can also be a valuable alternative to disconnection for non-payment of bills. In 2010, Consumer Futures found that more than one third of consumers expressed a preference for prepayment meters, citing the security and peace of mind that comes from knowing they will not receive an unexpectedly large bill. Often, many of the poorest customers worry not just about the bill but about unexpected changes in it, and many value the certainty that prepayment meters bring.

Prepayment meters are not ideal, however, and have many drawbacks. Typically, they have been one of the most expensive payment methods, and when exchanging one for a credit meter, many suppliers have charged a fee or requested security deposits. As the hon. Lady said, if a customer cannot afford to top up their prepayment meter, they may self-disconnect. This is a difficult area, with many other factors that can confuse the figures—second homes, holiday homes and so on—but we are talking to suppliers to try and get a better grip on this important group of customers. We take the issue seriously and are currently looking at some proposals that I and my officials would be happy to talk through with the hon. Lady.

All these issues underline the importance of ensuring that prepayment meter customers are not prevented from accessing the benefits of competition or innovation in the market. Recently, several changes have improved the experience of prepayment meter users. Since 2010, most suppliers have chosen to equalise their prepayment tariffs with standard credit prices, while any remaining price differences from other suppliers are likely to fade out with the roll-out of smart meters. Suppliers, including some smaller providers, have also been competing hard for customers who pay by prepayment meter. Recent innovations include offering to change for free, scrapping security deposits and replacing meters with smart prepayment meters—that is obviously not universal among suppliers, but it is an encouraging trend in the market.

Suppliers now offer more ways to top up a meter, such as paying over the phone, online or through an ATM, showing that the prepayment market is far from uniform. There are welcome changes taking place. Prepayment consumers can still access considerable price savings and other benefits by comparing the market for the best deals, and smart metering has the potential to bring further benefits to prepayment customers. Every smart meter will have the functionality to operate in either prepayment or credit mode, so will enable easy switching between the two payment methods as customers’ circumstances change.

It is vital that suppliers take proactive steps to protect their prepayment customers, particularly the most vulnerable. They are currently obligated under their licence to take account of a customer’s ability to repay when setting a repayment schedule, and there is evidence to suggest that they are fulfilling this obligation. Average weekly debt repayment rates for prepayment customers have declined. In quarter 4, they were £6.94 for gas and £6.31 for electricity. This compares to £7.87 and £8.31 respectively in 2010. Furthermore, the majority of indebted customers are on standard credit, not prepayment meters, and repay through a variety of means, suggesting that repayment is tailored to the individual customer. Moreover, all suppliers now provide emergency credit on prepayment meters.

I apologise to the hon. Lady if I have not addressed all her points. We are committed to giving more choice to prepayment meter customers and to working with Ofgem and suppliers to ensure that their reforms work for those customers. I would be happy to sit down with her and go through it in more detail.

Question put and agreed to.