Dawn leads debate into Pre-Payment meters with The Minister of State for Energy & Climate Change.
Dawn Butler: There is a prediction that we are about to experience the longest winter in 50 years. Now is the time to consider what that will mean for the most vulnerable in our society. We know that in 2014 there were 43,900 excess winter deaths in England and Wales, and if the predictions translate into a long period of harsh weather, that figure could rise for 2015-16 unless we act to mitigate the effects.
The UK Association for the Conservation of Energy estimated that almost 14,000 deaths over the last winter could be due to people living in cold homes. Therefore, the most obvious area where we can act is energy consumption, and particularly the cost of pre-payment meters and how they are put into people’s homes, especially for those already experiencing fuel poverty. If we tackle that issue, we can alleviate part of the problem of excess winter deaths.
More than 2,000 new PPMs are being installed every day. I would like to put on record my thanks to Citizens Advice for its “fair play for prepay” campaign. It is clear from my constituency of Brent Central how unfairly the costs of PPMs bear on poorer residents. My constituency has one of the highest numbers of people on PPMs in the country—at 26%, it is 10% above the national average—and those on PPMs pay on average £226 more a year than those with the cheapest direct debit deals. We can get an idea of the scale of the impact from the fact that it costs £3 million to the local economy.
What is worse is that 80% of PPMs are used to collect debt for the energy companies. So the energy companies subject poor people to higher rates, and there is also the cost of installing PPMs. It is almost as if these people are being punished again and again and again.
Stephen Pound (Ealing North) (Lab): My hon. Friend is raising an extremely important point, particularly for those of us in London. She says PPMs are being “put into” people’s homes. Is she stating to the House that the people living in these properties have no say in that, and are being forced to accept these PPMs?
Dawn Butler: That is what sometimes happens. Some people come home, as Mr Hamilton in my constituency did, to find a PPM has been installed without their knowledge, which should never happen. It is a disgrace that the energy companies do that.
The poorest 10% spend almost 10% of their total household expenditure on fuel, whereas the figure for the richest 10% is just 3%. That is why fuel poverty is a recognised term. According to Ofgem, those on pre-payment meters pay on average £80 more than those on direct debit. Although that figure has reduced, the differential can be reduced much further. As the Minister will know, the Competition Markets Authority’s provisional findings on the energy market, released this July, raised concerns about the affordability of domestic energy prices, as they have continually outstripped inflation over the past 10 years. Yet, at the same time, standards of service have dropped and complaints have risen.
Under the Labour Government pre-payment bills rose on average by just over £17.50 a year, whereas during the past four years annual bills have risen on average by £63. The Government should make it clear to the big six energy companies that they must reduce the amount that those on pre-payment meters pay for their gas and electricity. After all, these are vulnerable people who can least afford that amount of money and those higher costs.
British Gas has sort of led by way, levelling out the amount its customers on pre-payment meters pay to the same amount as for those on cash and credit, but I have been advised that those paying by direct debit will still be incentivised and pay a little less because of the reflectivity requirements. That is understandable, but more should still be done—all that is needed is the will power of these energy companies.
Stephen Pound: Has my hon. Friend made any calculation about the amount of profit made by the big six energy companies? It seems to me that we have a case of Robin Hood in reverse here: the poorest in our society are having to pay to subsidise the wealthiest. Has she done any work on or made any estimate as to the amount of profit accruing to the big six?
Dawn Butler: I thank my hon. Friend for his intervention. The big six make about £600 million a year in profit, which is an enormous amount, and they can afford to treat the most vulnerable in our society much better than they do.
Chris Stephens (Glasgow South West) (SNP): The hon. Lady is making a number of excellent points and I thank her for raising this important issue. I am aware of constituents who are paying more in standing charges for pre-payment meters than they are for the actual energy consumption. That should be regulated a lot more toughly.
Dawn Butler: I agree that the standing charges need to be regulated, as does the whole industry. It can do a lot more, especially given that, as I have said, we are about to enter the longest winter in 50 years.
I urge the Minister to encourage energy companies to follow in the footsteps of ScottishPower, which suspends the debt of its customer during the winter months so that anything they put into the meter goes directly on their usage of fuel. Let me put that into context: my constituent Mr Hamilton would put £5 on his meter and the energy company would take £3, so he had only £2-worth of fuel. If the Minister was able to encourage the energy companies, they could do this straightaway and with very little effort, but it would make a big difference to the people in the country.
As the Minister will know, in 2016, we enter the enduring phase, which will ensure that all meters are smart meters by 2020. Therefore, it is important that we help to inform people who are fuel poor. After all, energy companies will be making £12 million-worth of savings with the implementation of smart meters, so surely we can look after the 2.3 million fuel-poor households in this country. The energy companies are making enough money to be able to look after those who are fuel poor.
I expect the Minister will tell us that energy companies are not allowed to disconnect customers during the winter months, but they still install pre-payment meters, which means that people self-disconnect because they cannot afford to pay. They are, in effect, still being disconnected, they are still getting cold and, unfortunately, some still die.
Stephen Pound: I really am grateful to my hon. Friend for giving way. I will try not to trespass on her patience for much longer. On the subject of disconnection, is she aware that, in some cases, there can be long-distance disconnection? People can be disconnected without a magistrate having to sign an order for the company to enter the premises physically to disconnect. In other words, if it is possible to disconnect a power supply without even entering the premises, one of those vital layers of protection for the consumer, particularly the vulnerable consumer, has been removed.
Dawn Butler: Absolutely. The installation of smart meters will make such remote disconnection even easier to carry out. Energy companies have said that they will not do that, but do we trust them enough to believe them? That is why we must safeguard and protect the most vulnerable in our society. It also means that magistrates have to be given clear information. As a magistrate myself, I can tell Members that we normally get lots of warrants to sign off at the beginning of a sitting. Magistrates clearly ask whether the energy company has gone through all the safeguards with regard to vulnerable adults, people with mental health problems or children at the property. On some occasions, I was not always convinced that the energy company did its due diligence when asking for a warrant to enable it to enter a property forcefully to install a pre-payment meter, which will be more expensive for that person who is least able to pay the bill.
I have talked about the high cost of pre-payment meters and the matter of self- disconnection, which happens quite a lot but which is not often mentioned by the energy companies or by this House. Recent research undertaken by E.ON highlighted that seven in 10 people with pre-payment meters had accidentally self-disconnected even when they were not expected to do so. That is a very high number. Over the winter months, we expect that figure to rise.
Pre-payment meters are being installed way too early in the debt plan. Energy companies are supposed to go through a whole plan of what they can do to help their customer to avoid fuel poverty. As we are entering the enduring phase—smart meters will be rolled out by 2020—surely now is the time to slow down and end the installation of pre-payment meters.
Chris Stephens: I thank the hon. Lady for giving way; she is being very generous. In my experience the fuel regulator has no teeth and is effectively powerless in stopping energy companies installing pre-payment meters early on. Does she agree that the fuel regulator should be given more powers?
Dawn Butler: I agree. Not only should the fuel regulators be given more powers, but a closer eye should be kept on what the energy companies are doing. I also think that the magistrates courts play a huge role in ensuring that the energy companies pass all the necessary tests before installing pre-payment meters. The amount is currently set at something like £150, but £500 is the amount set to stop people from switching to another energy company. The £500 figure should be the figure that an energy company has to reach before applying for a warrant to install a pre-payment meter, because it is just too easy to get such a warrant, which means that the customer plummets into more and more debt, as they cannot afford the amount that they have to pay.
Record profits are being made by the big six energy firms year on year. Does the Minister agree that the increases in charges and complaints are simply not good enough? Further action to protect the consumer, as my hon. Friend the Member for Glasgow South West (Chris Stephens) mentioned, is necessary.
Does the Minister agree that, when DECC’s own fuel poverty records show that 22% of pre-payment meter users are in fuel poverty, something needs to be done and quickly, especially with winter fast approaching, if we are not already in it? We could well witness a rise in self-disconnections and fuel poverty-related deaths if we do not do something in the next few weeks.
I am sure that the Minister and I are on the same page on this issue. To help her with her response, I would like to summarise some of my requests. It would really help the estimated 11 million people on pre-payment meters if energy companies brought the cost of pre-payment meters into line with those on the cheapest direct debit. It would also add £2.5 billion into the economy. I would also like to see greater protection for vulnerable adults and children when pre-payment meters are installed. That would mean giving clear instructions to the magistrates court. I would like to see no pre-payment meters fitted during the winter months. As previously said, that leads to self-disconnections. So in effect the energy companies are still disconnecting vulnerable people during the winter months. There should be a suspension of debt during the longest winter in 50 years—this year, 2015 leading into 2016. All the above is completely doable, and a letter from the Minister could make it happen.
Lastly, we are all aware that food banks have become a godsend to many in our country and some people would be having a pretty lousy Christmas if it were not for food banks. I wish that they did not have to use them, but that is the situation. I thank the Trussell Trust and E.ON, which have teamed up to provide credit for struggling families who use pre-payment meters. I know that, in my constituency of Brent Central, we will be grateful for their services. I hope that the Minister and I will agree that this country can do more to help those who are fuel poor.
The Minister of State, Department of Energy and Climate Change (Andrea Leadsom): I genuinely congratulate the hon. Member for Brent Central (Dawn Butler) on securing this debate on the cost of pre-payment meters. I can assure her that the Government are committed to helping households with their energy bills, and a great deal of the focus in my Department in recent months has been on how to reduce consumer bills for everyone. It is an incredibly important point, and the hon. Lady has made it well.
We know that it is often some of the most vulnerable in our society who can end up with a pre-payment meter. While we are working with Ofgem to provide greater support specifically for those consumers—I will come on to exactly what we are doing on pre-payment meters—it is also important to point out that we have also implemented a range of measures to help vulnerable households to reduce their energy bills, including the warm home discount scheme, which provides direct assistance on energy bills to more than 2 million low-income and vulnerable households each year.
The Government are also determined to help vulnerable consumers take advantage of the best deals available. We know that many vulnerable consumers need additional help and advice to engage with the market and take action to switch and save. That is why DECC has been providing nearly £3 million over the last three years to fund the big energy saving network. The network is designed to help vulnerable consumers take action to reduce their energy costs, with around half of participants reporting that they now spend less on heating their home because of their engagement with the network. It has reached around 220,000 people over the last two years, and we aim to reach a further 100,000 vulnerable consumers this winter.
Helping people to insulate their homes is one of the best ways to help keep energy bills down; 1.3 million homes have benefited from energy efficiency measures, such as insulation and efficient boilers, under the energy company obligation between January 2013 and September 2015. The current phase of ECO will run to March 2017, but in the spending review the Government announced a long-term successor to ECO that will continue for an additional five years from 2017, at £640 million a year, rising with inflation. That new supplier obligation will run from April 2017 to March 2022, reducing the impact of the obligation by around £30 for the average household from 2017-18, compared with current projections. It will also upgrade the energy efficiency of well over 200,000 homes per year, tackling the root cause of fuel poverty. We will set out our plans for the scheme early in the new year.
The hon. Lady has raised a very important issue. A significant proportion of households—about 17%—use pre-payment meters. Although not all pre-payment meter consumers are financially vulnerable, more than 60% of those meters have been installed as a result of debt. For some consumers in difficult circumstances, they offer an alternative to disconnection for non-payment of energy bills, although we recognise that those consumers would rather not be in that situation. Still others prefer pre-payment meters because they find that that allows them to budget for their energy expenditure and to keep track of what they are using. Consumers can build up credit in the summer months to reduce their expenditure over the winter.
We know that paying by pre-payment can be more expensive than paying by direct debit. That is because there are further costs to install pre-payment meters, as well as additional services provided. But there are safeguards in place to prevent suppliers from charging unjustifiably high tariffs for a particular payment method. Suppliers are required to ensure that differences in charges really reflect the costs they face to provide that payment method. Across the market the cost of paying for the energy by pre-payment meter is similar to the cost faced by customers paying by standard credit.
The majority of suppliers offering pre-payment meters do not charge when consumers agree to the installation. That includes the big six energy companies. Other companies, however, as the hon. Lady points out, do pass on the charges they incur from meter operators for installation. These consumers can also face costs to have the meter removed, once they are able to go back to having a credit account. That cost, on average, is between £160 and £180. Ofgem is currently working with suppliers to identify and extend good practice to end charges for installing and removing pre-payment meters.
What should suppliers be doing? We expect to see suppliers meeting the obligations under their licence only to install pre-payment meters where it is safe and reasonably practicable for the consumer to use a pre-payment meter. Suppliers must take into account a customer’s ability to repay when setting instalments to repay gas and/or electricity debt. I am pleased to say that there is evidence to suggest that suppliers are fulfilling this obligation: first, Ofgem keeps weekly repayment rates under review, and they have fallen on average in recent years; and, secondly, the majority of indebted customers are on standard credit, not pre-payment meters, and repay through a variety of means, which suggests that repayment is indeed being tailored more to suit the needs of individual customers.
We know that some customers who are concerned about their energy bills will self-disconnect by deliberately choosing not to top up, meaning that their supply will stop. In those circumstances, it is vital that they seek help from their supplier as soon as possible. I expect suppliers to have in place appropriate arrangements to protect their most vulnerable consumers, and systems to identify any potential problems so that they can be rectified early. The hon. Lady made that point very well.
Dawn Butler: I want to make a couple of points. The rate of complaints about energy companies has increased exponentially because they are not taking into consideration the circumstances of vulnerable people who are unable to heat their homes. With regard to switching, people on pre-payment meters have very little to switch to, so the benefit to them is about 8%, whereas the benefit for those on direct debit is about 22%.
Andrea Leadsom: I am grateful to the hon. Lady for raising those points. I will certainly look into her first point: she believes there is evidence that suppliers are not taking into account individual circumstances. As I said, I expect suppliers to have appropriate arrangements in place. If she wants to raise individual cases with me, I will look into them. I can tell her that today a dual fuel pre-payment consumer with average consumption living in London could save about £130 by moving to the cheapest dual fuel pre-payment deal in the market. There is merit in switching and I urge all consumers, including those on pre-payment meters, to shop around.
My absolute focus remains on getting the best deal for consumers. I expect suppliers to treat their consumers fairly and we expect suppliers to make sure that any reductions in the costs of supplying energy are passed directly to consumers. Strong competition in the energy supply market is the best way to keep prices down. The Government are committed to ensuring that the market works effectively for consumers.
Chris Stephens: I want to come back to the issue of self-disconnection. Have there been any discussions with her Department and the Department for Work and Pensions about emergency help that can be given to someone in those circumstances?
Andrea Leadsom: Those conversations happen regularly. I will write to the hon. Gentleman with any specific changes that we intend to make or consult on. I absolutely assure him that suppliers are required to take into account consumers’ specific circumstances. Ofgem is looking into the cost of having pre-payment meters removed and whether that should continue for pre-payment consumers.
I move on briefly to the investigation into the retail energy market currently being conducted by the Competition and Markets Authority. The CMA published its provisional findings and remedies in the summer. It found that customers on standard variable tariffs are being charged unjustifiably high prices; the majority of pre-payment customers, of course, are on those standard variable tariffs. We are committed to acting on the CMA’s recommendations and to ensuring fair prices for all consumers, including standard variable tariff customers using pre-payment meters.
The CMA also found that pre-payment customers have fewer tariffs to choose from than customers paying by direct debit. There are indications, though, that that is beginning to change. We are starting to see the development of smart pre-pay meters. E.ON is currently piloting a smart pay-as-you-go tariff for consumers using a smart pre-payment meter who then pay the same prices as the company’s standard credit customers. It expects to make the tariff more widely available to new and existing customers from next year.
With OVO’s pay-as-you-go tariff, pre-payment meter consumers receive an in-home display that enables them to see how much energy they are using and when, and how much credit they have left. Consumers can also add credit to their pre-payment meter anywhere via app, text or online. We are also seeing examples of good practice by suppliers. For example, there is SSE’s support for its vulnerable pre-payment consumers that includes monitoring those on the priority services register to identify self-disconnection. The company will then call the consumer to check the situation and to make the offer of extra assistance, where appropriate.
The roll-out of smart meters is an important national modernisation programme that will bring major benefits to consumers and the nation as a whole. Domestic customers will be offered an in-home display enabling them to see what energy they are using and how much it is costing.
Smart meters have the potential to transform the experience of being a pre-payment customer. Customers can top up more conveniently through a range of channels. Topping up smart meters in pre-pay mode should become as easy as topping up a mobile phone. They are likely to herald greater and cheaper tariff choices for these customers, as the cost differential will be reduced. Smart meters will enable energy suppliers remotely to take action to avoid disconnection—for example, through switching consumers to credit mode, setting non-disablement periods, and configuring debt recovery amounts to be small.
A customer’s ability to pay their energy costs while keeping warm is among the top concerns of my Department, and we are fully committed to tackling these issues through a range of innovative policies. I thank the hon. Lady and the other hon. Members who contributed to this very important debate.