The injustice of prepayment meters – an open letter to my MP

The following is a letter sent to my MP, Richard Fuller on 8th December, setting out the injustice faced by those who pay for their energy via a prepayment meter. Mr Fuller replied on 14th December and I have included this reply at the bottom of the blog.

Dear Richard

I am writing to you regarding the poor treatment of energy customers who pay for their energy via prepayment meters and my concerns around the substantial numbers of households who are being forced onto prepayment meters, either via court warrant or if they have a smart meter, being remotely switched from credit to prepayment mode without prior notice.

Prepayment meter (PPM) customers are by definition among the most financially vulnerable in the UK. Research by Citizens Advice found that in 2018 around 140,000 households had been unable to top up their prepayment meter within the last 12 months. 88% of these households contained a child or someone with long-term health issues. 87% of these households were on benefits and only 9% of these households had contacted their supplier for help. More recent evidence has found that self-disconnections in the first half of 2022, exceeded the total number of disconnections across 2020 and 2021 combined.

PPM customers endure a number of injustices

Firstly, they pay more for their energy than those paying via direct debit. This leads to the abhorrent situation where those on the lowest incomes pay a higher rate for their energy than the wealthiest in the country. This was described as “perverse” by Keith Anderson the CEO of Scottish Power, although sadly this practice was defended by the energy regulator Ofgem.

Secondly, PPM customers pay standing charges at a higher rate than any other method of payment. Daily standing charges have risen considerably in the last 12 months. A major component of this standing charge is to recoup money for the ‘Supplier of Last Resort’ scheme following the collapse of a high number of energy suppliers. Therefore, the poorest households in the UK are bearing the brunt of weak regulation and oversight by the energy regulator Ofgem and shady practices by the Directors of these energy firms.

Thirdly, and arguably the most profound injustice faced by PPM customers, after they ‘self-disconnect’ from their gas or electricity supply, they still accrue further debt on a daily basis, as the standing charges still apply – even after they can no longer heat their homes or switch on their lights. These standing charges, along with any emergency credit provided by the energy company must be cleared before the supply is restored.

For PPM customers the average daily standing charge for electricity is 51p a day and for gas 37p a day. This adds up to over £7 per week – small change for MPs, but the final straw for people already in dire financial straits.

Further, direct debit customers have the benefit of spreading the cost of their energy evenly throughout the year. PPM customers do not have that luxury and must pay upfront for all their energy use – and at a higher rate. A cold spell is a minor inconvenience for direct debit customers, for those on prepayment meters it is an imminent financial crisis.

There are multiple negative impacts resulting from ‘self-disconnection’ by PPM customers. As acknowledged by Ofgem in their 2020 Impact Assessment report, aside from cold homes and unlit rooms, customers are unable to wash properly and there are the added issues of stress due to financial problems, as well as feelings of shame and embarrassment.

In April 2023, the Energy Price Guarantee will rise to £3,000, up from the current level of £2,500. Of course, this will increase unit prices and standing charges further. It should be pointed out that this is neither a ‘guarantee’ or a ‘cap’ but a maximum rate a customer can be charged for a set amount of energy, termed the ‘Typical Domestic Consumption Value.’

In spite of the welcome support provided by the £900 Cost of Living payment, many households will struggle will this 20% rise in energy costs. Further, for the reasons previously discussed PPM households will be at high risk of financial hardship.

Potential solutions to ease the burden would be to abolish standing charges for those who pay their bills by PPM. At current standing charge rates this would save an electricity PPM customer around £186 per year and a gas PPM customer £155 per year. This would also end the insidious racking up of debt while disconnected. I would ask you to consider pressing for this as an option that would benefit your constituents who pay for their energy by PPM.

Households forced onto prepayment meters

Throughout 2022 energy companies have ramped up their efforts to forcibly move customers onto prepayment meters. In the first six months of the year there were 187,000 applications for warrants to install PPMs in homes. As a comparison, there were 67,000 PPMs installed via warrant in 2019. The industrial scale of this change has led to suspicions that PPM installations are being ‘rubber stamped’ with little scrutiny around the circumstances of individual customers. As well as being moved onto a payment method that incurs higher costs, customers face a £150 charge for the installation of a PPM, worsening their already difficult financial situation.

Further, there is strong evidence that energy companies are not abiding by their licence conditions which stipulate that a ‘seven working day’ notice period is required and they are not carrying out “an assessment of whether prepayment mode is safe and reasonably practicable for the consumer” and customers are being changed from credit to PPM mode without any notice being provided. This is completely unacceptable.

This forced change onto prepayment meters is also being seen as a ‘back door’ means of disconnection as PPM customers do not have the same level of protection against being cut-off as customers on credit meters, who in most cases cannot be disconnected between the dates of 1st October and 31st March.

To date, Ofgem has done little more than write strongly worded letters to the energy companies. I hope you will agree that it is long past time for enforcement action to be taken and these practices must be stopped immediately.

Energy Bills Support Scheme (EBSS) vouchers for Prepayment customers

I have seen that Grant Shapps, the Secretary of State for Business, Energy and Industrial Strategy wrote to energy company CEOs on 4th December regarding the lack of uptake of EBSS vouchers by those customers on traditional (i.e. not smart) PPMs. Mr Shapps points out that 41% of these vouchers issued in October to PPM customers using traditional meters had not been redeemed. This equates to approximately 800,000 vouchers with a value of around £66m.

You will be aware, as you sat on the committee, that the Business, Energy and Industrial Strategy Committee had already highlighted concerns around the issuing of vouchers in their ‘Energy pricing and the future of the energy market’ report, published in July 2022. A link to this report here:

I draw your attention to paragraphs 72 and 73 of the report, which discusses excessive standing charges for PPM customers; paragraphs 172, 173 and 174, which discuss previous issues with the loss of vouchers, a 30% rate of non-redemption of vouchers during a 2014-15 government scheme and finally a recommendation that “the Government pays the scheme via a negative standing charge to mitigate the risk of prepayment customers not redeeming their vouchers and to ensure it reduces the costs of energy for customers in debt.”

It is not clear therefore, why Grant Shapps seems surprised at the lack of take-up of the vouchers when he was given clear warnings that this would happen. Citizens Advice also gave a similar warning in their consultation response to the BEIS. Can you advise why the recommendation to use a negative standing charge was not taken up?

We face the prospect of an excessive number of people dying in their homes due to the cold this winter. For the reasons set out in this letter, PPM customers are at particularly high risk. Further, unheated homes and the stress caused by financial hardship will have a detrimental impact on people’s physical and mental health and place further pressure on the NHS.

In the medium term, I believe the government should be looking at a ‘social tariff’ for vulnerable households. However, for many on PPMs, or under threat of being moved to PPMs, further immediate help is required. I hope you will agree with me that urgent action is needed in this area, in terms of further assistance to PPM households and firm action by the regulator against energy firms who are treating their vulnerable customers so poorly.

For information, I was unable to collate figures for the number of households with a PPM within our constituency of NE Bedfordshire, using data from the GOV.UK website I can confirm in 2017 there were 7,515 households in Central Bedfordshire and 6,701 households in Bedford Borough with electricity prepayment meters installed.

Due to the importance of this issue please regard this as an open letter. I look forward to your response and will also be happy to discuss the issues in this letter in person or on the phone.

Julian Vaughan

8th December 2022

Mr Fuller’s reply sent on 14th December is below, posted with permission.

I will point out that the letter makes no reference to the three questions set out in my letter regarding; abolishing standing charges for prepayment meter customers; the need for Ofgem to take enforcement action against the energy companies and why the BEIS committee’s recommendation to use a negative standing charge, rather than the issuing of vouchers to assist non-smart prepay meter customers, was not taken up by the government.

Further, the ‘friendly hours’ credit only applies if there is credit on the meter at the start of the friendly hours period. If there is not you are not reconnected during these hours. The hours of friendly credit are 6pm – 11am Monday to Saturday and all day Sunday and bank holidays.

In addition, Mr Fuller states that Ofgem has taken action and warned suppliers that Prepayment meters should only be installed as a ‘last resort’. However, the rate of prepayment meter installations has rocketed in the last year. Currently, 20,000 households a month are being moved to PPM meters and there were 187,000 applications for warrants to install a PPM in the first six months of 2022. In addition, 152,000 households had their smart meter switched remotely to prepayment mode in 2022. Some ‘last resort’. Details here:

Finally, Ofgem has statistics for the number of self-disconnections, as they have been collecting them for around a year, but for some reason don’t want to publish them at this time. I believe it is because they are aware that the figures would generate a national scandal. Their evidence on this matter to the BEIS committee is set out below.

Mr Fuller’s letter via email received on 14th December.

Sources and Further reading

Ofgem ‘Self-disconnection and self-rationing – final impact assessment June 2020

Energy pricing and the future of the energy market – BEIS Committee July 2022

Written evidence to the Business, Energy and Industrial Strategy Committee from Citizens Advice

Citizens Advice response to BEIS’ letter on changes to the Energy Bills Support Scheme

Grant Shapps letter to energy company CEOs 4th December 2022

Ofgem: Extending protections on prepayment meters installed under warrant: decision December 2020

End Fuel Poverty Coalition: Immediate ban needed on forced pre-payment meter transfers

Energy UK – The Vulnerability Commitment

Ofgem – Prepayment meters Explained

Electric prepayment meters by Local Authority

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