A policy solution to poverty-promoting pre-payment meters

It is frequently asked how we reach the lower paid and those in poverty who have made up a large proportion of whose who may have been disenfranchised or chosen to vote for UKIP in the past. A big part is about getting the message across in a way which isn’t patronising or condescending but it’s also the day to day issues that need addressing. Liberal democrat policies need to be addressing these issues.

Those who have struggled financially, having fallen in to arrears, or are in rented accommodation are highly likely to be placed on pre-payment meters for their energy needs. The BBC today reported that these customers are likely to pay on average £220 more a year than customers who are not on the pre-payment meters.

The Ofgem report released today promised:

Those on pre-payment meters, who are among the most vulnerable and least likely to switch, will be protected by an interim price cap which will save them around £75 a year from next April.

I don’t think this goes far enough, pre-payment tariffs will still average a cost of around £145 more a year and, furthermore, the use of the word ‘interim’ highlights that the cap is not even a permanent reduction to pre-payment tariffs. This potentially means that pre-payment tariffs may become even more unfair after any proposed cap expires.

With the monitoring of energy consumption being rolled out across all households, the energy suppliers justification of the additional technology required to maintain the pre-payment system does not stack up. Whilst there would undoubtedly be some cost in the administration of the payment system, surely the cost should be distributed across their system, as any hardware network maintenance cost would be, in order to make the system fairer for the least well off and that’s without even mentioning an effect on their profits.

Wouldn’t it be better to have a policy that pre-payment tariffs should be the same as those not requiring pre-payment? The energy companies could manage their costs within the whole tariff system and this would then remove one area of discrimination faced by those in poverty or facing financial hardship.

* Rebecca Forrest joined the Liberal Democrats on 24th June 2016 She blogs at at rebeccaforrest.co.uk and is part of the new member welcoming team locally in Bolton and nationally via Facebook and Twitter (https://www.facebook.com/groups/LibDemNewbiesUK/ and @LibDemNewbiesUK).

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15 Comments

  • Phil Beesley 3rd Aug '16 - 7:16pm

    Rebecca: “Wouldn’t it be better to have a policy that pre-payment tariffs should be the same as those not requiring pre-payment?”

    I think it might be wise to assign all of the meters on pre-payment to a common provider, adopting median pricing and a standard meter cost. There’s not much money in it for the service provider — or there shouldn’t be — but once try the experiment we can learn.

  • Ebico is a social enterprise supplier which has a single rate tariff now, regardless of meter type, so their rates are an indicator of what this business model delivers.

  • Daniel Norton 3rd Aug '16 - 8:23pm

    Hi Becky,

    You raise a really interesting point, but there are two issues at play here and I’d be interested in peoples’ views on them.

    Firstly, the reason that prepayment meter customers pay £220 more isn’t in the difference between equivalent tariffs – it’s that this group of customers is much less likely to shop around and many of the best deals aren’t available to them. Because they are not engaging in competition the market isn’t delivering for them. So, is it better to regulate this sector (as the CMA has done) or promote competition?

    Secondly, is it the role of the energy companies to cross-subsidise between groups of customers? You’re suggesting that, effectively, they should take money off one group of customers and use it to pay costs incurred by others. Whether someone has a prepayment meter isn’t actually a very good proxy for vulnerability – there are more vulnerable customers on standard meters than on prepayment so should these customers pick up the bill for others?

    Given that these are very live issues in our economy, what do others think? How far should regulation reach and where is the limit of competition failing? And what is the role of the private sector in socialising costs across the economy, versus government redistribution?

  • Phil Beesley 3rd Aug '16 - 9:01pm

    Daniel Norton: “Firstly, the reason that prepayment meter customers pay £220 more isn’t in the difference between equivalent tariffs – it’s that this group of customers is much less likely to shop around.”

    Yeah, try arguing about ‘leccy bills with an accountant. We, UK, have a big problem but I don’t think that you have a solution.

    “Secondly, is it the role of the energy companies to cross-subsidise between groups of customers?”

    Simplistic questions receive daft answers.

  • Rebecca Forrest 3rd Aug '16 - 9:31pm

    Hi Daniel,

    In response to your first point, being on a pre-payment meter is frequently not a choice made by the customers and the lack of ability to be approved for a credit account, or being restricted by a landlord/tenancy, means there is no ability to change tariff.

    Your second point is related to the first, in as much as if the energy companies are imposing the pre-payment meters then they should fund them as part of their ordinary provision. I disagree that an energy company imposed pre-payment meter is not an indication of vulnerability – it is usually on those who cannot obtain credit. Many renters who have them imposed by landlords are the ones unable to afford to buy their own property. Making energy payments fairer may mean that other customers do pay more but thankfully as a party we are working towards other areas and ways in which we can reduce poverty so that any change is negligible.

    It sounds like Ebico have already adopted the approach I suggest here so it is something which is possible and which could be rolled out given sufficient incentive or guidance.

    For clarification, I’m not saying there should be no competition but that it should be accessible to all customers.

  • Steven Raison 3rd Aug '16 - 9:50pm

    Having Moved into a property with a pre payment. The Guy from the Council was not aware when he gave me Keys. Just Swopped over to Smart Pre Pay via Community Switch after visit from ‘Green Doctor’. Got Free LED Bulbs and Energy Monitor.

  • Stevan Rose 3rd Aug '16 - 9:53pm

    Hugh said exactly what I was going to say. There is already a supplier in the market that doesn’t discriminate against prepayment customers. They’ve been there for a number of years. People have a choice now but don’t take it.

  • Being bored I have just done a few price comparisons. I have a green duel fuel deal which I signed up to at the end of last year, with monthly DD.
    On gas I save about £200 a year compared to prepay.
    But on electricity Ebico prepay was £20 a year cheaper!! I also found other prepay offers which were only slightly more expensive, but not from the big six which were 12% more expensive.
    And that’s the problem it is just so complicated. Even I could have got a better deal.

  • Phil Beesley 3rd Aug '16 - 11:30pm

    Stevan Rose: “There is already a supplier in the market that doesn’t discriminate against prepayment customers. They’ve been there for a number of years. People have a choice now but don’t take it.”

    So who pays when a customer chooses (or has the financial ability) to move from a pre-payment contract to “normality”. Who pays for a new ‘leccy meter?

  • Stevan Rose 4th Aug '16 - 12:19am

    “Who pays for a new ‘leccy meter?”

    I don’t know and am not interested in finding out; why is it relevant when the post is about people who are not moving to a credit meter?

  • “Wouldn’t it be better to have a policy that pre-payment tariffs should be the same as those not requiring pre-payment?”

    Well, this is the flaw in the ‘smart meter’ program! The smart meters – being deployed at vast expense to the customers, don’t as standard have a card reader or ‘SIM’ slot. If they did then all meters could be either pre-paid or contract, just like every mobile phone handset… Switching supplier would then be a simple case of picking the appropriate SIM/topup card from your local store and inserting it in the meter…

  • Richard Underhill 4th Aug '16 - 9:31am

    Former leader ‘Paddy’ Ashdown said “If blood is free why should water be charged?”
    Risky though, this lot might charge for blood.

  • Catherine Royce 4th Aug '16 - 5:22pm

    A good topic for a motion to Conference, if we are serious about poverty reduction. Saving £5 week equates to another hot meal on the table for your family, assuming there’s enough in the meter to cook it.

  • Neil Sandison 9th Aug '16 - 2:31pm

    Welcome this article by Rebecca .It means Liberal Democrats are beginning to address the issues of the left behind who are frequently overcharged for basic utilities like electricity, gas, and water because of the block of flats they live in or their post code. Keep ideas like this coming Rebecca.

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