openDemocracyUK: News

Millions on pre-paid energy meters could face cut-off as prices soar

Unavoidable charges for gas and electricity threaten to tip many of Britain's poorest people into debt or destitution

Chaminda Jayanetti
20 October 2021, 11.55am
Pre-paid meters may continue to charge customers after the energy supply has been disconnected
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PA Images / Alamy Stock Photo

The chaos in gas and electricity markets is set to hit one group of people the hardest this winter: the four million households that use prepayment meters (PPMs).

While most people pay their bills monthly for energy they have already used, PPMs require people to pay for energy before they use it. PPMs take whatever money is in the meter and supply energy to the household.

And while energy providers have to issue numerous warnings before disconnecting billed customers who fall behind on payments, PPMs cut off the energy supply the moment the money in the meter – including a limited amount of emergency credit – runs out.

What happens next is even worse.

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When PPMs hit zero, disconnecting the energy supply, they go on charging customers, taking the meter into deficit. The problem is the daily ‘standing charge’ imposed by energy suppliers. It covers the infrastructure costs of supplying energy – such as National Grid charges – plus ‘policy costs’ imposed by government to promote decarbonisation.

Standing charges can be anywhere from 5p-80p a day depending on supplier and location, but for those getting both gas and electricity (‘dual fuel’) via their meter – around three-quarters of PPM customers – the combined standing charge can easily rise above a pound a day.

“If my meter goes to no gas, and I don’t top it up for four days, I have to stick a tenner on it to get a quid’s worth of gas,” says Fiona, a woman who rents privately in West Yorkshire and asked for her real name to be withheld. “Once we slip to that it can take weeks to catch up.”

Once the meter hits zero and is driven into deficit by the standing charge, the customer has to both clear the deficit and restore the emergency credit before they can get their energy supply back.

If my meter goes to no gas, and I don’t top it up for four days, I have to stick £10 on it to get £1 of gas

“The emergency is a five quid credit when you run out,” says Fiona. “If you ask most people they are spending their weeks trying to stay on the right side of it. If you use the £5 emergency and then don’t top up it racks up debt.

“I spend my life running after that meter. I pay the same for having no gas for four days as I do for having gas. I have frequently had to borrow £15 so I can get the meter back to zero and live on the emergency credit.”

According to Alex Belsham-Harris of Citizens Advice, people who use PPMs are at particular risk of falling into debt. “If they can’t afford to top up, their supply is disconnected. The recent increase in energy prices will put them at even greater risk,” he said.

“We’ve tried to work with [energy regulator] Ofgem and the UK government to reduce the impact of standing charges on prepayment meters,” said Peter Smith, director of policy at the charity National Energy Action (NEA).

“But whilst there were some broadly encouraging noises four years or so ago, energy suppliers continue to apply large standing charges to bills without any consideration of customers’ ability to pay them, and the UK government continues to apply energy policy costs in a flat way on consumers’ bills without taking any account of their payment type, usage or income level.”

NEA says up to a million households a year are driven to ‘self-disconnect’ – cutting off their own energy supply – to try and bring down their costs. Even then, unless the supplier caps the accumulating standing charges, they will continue to rack up. NEA has come across low-income households that haven’t heated their homes for the previous year, including all winter, because they can’t afford to replace a broken boiler – but still end up with bills of £200 from standing charges alone, which must be paid before accessing any energy.

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A perfect storm of rising energy bills, increasing food prices and cuts to Universal Credit is set to have a harsh impact on PPM customers. They are disproportionately likely to be on low incomes to begin with, while energy unit costs are higher for prepayment customers than those paying direct debits.

The energy price cap for dual-fuel PPM customers was recently raised by £153, to £1,309 a year – a higher rise, both in raw and percentage terms, than for direct debit customers. But since those figures apply to only average energy usage, people with higher energy needs will likely pay more. This is particularly true of people living in energy-inefficient housing, who are disproportionately likely to be on low incomes.

Those who’ve been transferred to a new energy supplier after their old one went bust may also see their costs rise more quickly than the energy cap, which itself is expected to be jacked up further next April.

“I was talking to somebody a few weeks ago who was saying that they kind of live in their emergency credit,” said Phil Parkes, volunteer coordinator at Expert Citizens, a Stoke-on-Trent-based network of people with experience of multiple needs, including mental health issues and homelessness.

“This price hike, and this meaning that they’ve got to put more on, means that some weeks they’re going to have to be choosing whether to be able to have electric or to feed themselves. And I don’t think that’s a choice that anyone should be having to make.”

Help is limited so far. The recently announced Household Support Fund, intended to help people in hardship this winter, is worth £500m, which is a fraction of the £6bn a year that will be saved by the recent £20-a-week cut in Universal Credit. The government’s Warm Home Discount scheme also offers a one-off £140 payment towards energy bills – the poorest pensioners receive this automatically, while energy providers offer it to other people based on varying criteria. Energy provider EDF’s scheme, for example, is targeted towards low-income customers who are parents of young children or disabled.

A spokesperson for Ofgem told openDemocracy: “Ofgem’s number one priority is to protect customers. We know this is a worrying time for many people. The energy price cap covers around 15 million households and will ensure that consumers don’t pay more than is absolutely necessary this winter. Any customer worried about paying their energy bill should contact their supplier to access the range of support available.”

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