Prepayment Meters and Fuel Poverty

Debate between Fiona O'Donnell and Julie Hilling

Monday 20th January 2014 Commons Chamber

[Fiona O'Donnell (East Lothian) (Lab)]

This is the first time that I have been successful in securing an Adjournment debate, so my expectation of the Minister is high. I hope that he will not disappoint me, because I have some specific questions that I want him to answer.

It is appropriate to have the opportunity for this debate after the previous one about the effective regulation of payday lenders, in which you also generously called me to speak, Mr Speaker. As poverty and the cold bite across the UK, some will be driven into the jaws of those high-cost, under-regulated lenders to pay their energy bills. It is also appropriate to have the opportunity to hear from the Minister on blue Monday. As I left my home in East Lothian this morning, having scraped the ice off my car, I was aware that many in my constituency today not only face feelings of being blue about their lives, but are unfortunately blue with cold.

It was as a volunteer in my local food bank that I first saw the connections between changes to welfare, food insecurity, fuel poverty and prepayment meters. It is not an uncommon experience for food banks to find that people with prepayment meters who use the services of food banks have no energy to heat the food they receive. Households across the UK have seen energy bills soar. Last year, the big six announced increases of from 8% to 10%, with the average dual fuel bill now costing households £1,385. Many in my constituency without access to gas miss out on that dual fuel discount.

The Government have given two main responses to fuel poverty. The first was advice to shop around for a better deal. Does the Minister recognise that prepayment meters and debt are barriers to switching, and what is he doing to ensure that more people can switch supplier?

It is difficult for someone who inherits a prepayment meter to return to the credit method of securing an energy supply. Will the Minister tell the House whether he has any plans to act on that? During the last debate, I had a text from my son Michael to tell me that when he inherited a prepayment meter in the last property he rented in Newcastle, the supplier refused to remove it and to put him on the credit method, because of the postcode where he lived. I would hate to use my position to seek any preferential treatment for members of my family, but it shows that the experience is now hitting not only people with a record of debt and poor credit, but those inheriting prepayment meters.

The debt assignment protocol was promoted by Ofgem in September and introduced in November 2012. It was designed to assist customers with a debt to switch to the cheapest prepayment deal for them by increasing the threshold for the amount of debt that could be switched between suppliers from £200 to £500. The big six agreed to implement it voluntarily. Will the Minister tell the House what assessment he has made, or plans to make, of the protocol’s impact?

The second Government response was the statement to the House by the Secretary of State for Energy and Climate Change about the reduction—I refuse to call it a cut—in increases in energy bills to, on average, £50. In a response to me, he stated that prepayment meter users would benefit equally from that Government policy. Will the Minister explain to me exactly how people with prepayment meters will benefit, and what estimate he has made of the policy’s effectiveness for and impact on them?

Despite households being hit with increased prices, Ofgem’s “Domestic Suppliers’ Social Obligations: 2012 annual report” found that from 2010 to 2012 the number of disconnections for debt fell by 51% for electricity and by 69% for gas.

In June 2012, about 7.2 million people in the UK were paying for gas and electricity through a prepayment meter. The number of prepayment meters rose by 4% from 2011 to 2012 for electricity and by 6% over the same period for gas. It is reasonable at least to ask whether the reduction in disconnections and the growth in PPMs is linked. The problem will not have gone away, but may have been masked by the increasing number of PPMs.

Consumer Futures is conducting research with Citizens Advice and Citizens Advice Scotland to assess the scale of the problem of income-related self-disconnection and the impact of the changes, particularly in welfare, since 2010. Its findings will be reported later this year. Will the Minister give a commitment tonight that he will respond to any evidence from that research, and that he will work with consumer organisations to introduce a code of best practice on suppliers’ monitoring of PPM customers? We have to know the extent of this problem.

[Julie Hilling (Bolton West) (Lab)]

Does my hon. Friend agree that it is wrong that the energy companies do not monitor the energy use of people who are on prepayment meters? We have no record of the number of people who have self-disconnected because they are unable to afford energy and who are living in very cold homes.

[Fiona O'Donnell]

My hon. Friend makes a brilliant contribution, as ever. She is exactly right. It was ironic to hear British Gas boasting to the Energy and Climate Change Committee that it had not made any disconnections in the past year. It is clear that there has not suddenly been a solution that means that people are able to pay their energy bills. We have to get a handle on the scale of the problem. I hope that the Minister will consider sitting down with the big six, or getting Ofgem to do so, to find a way to ensure that they monitor the problem effectively, because the implications for people’s health and well-being—children and vulnerable people in particular —are considerable. The matter merits his attention.

Research conducted by Consumer Futures has also shown that 60% of PPM households had an income of less than £17,500. Given the clear connection between PPMs and poverty, and all the other factors that stem from poverty or cause poverty, it is vital that the Government and Ofgem do everything that they can to protect vulnerable consumers. However, the Government are in denial about the links between fuel poverty and PPMs. The Minister himself is in denial about it.

I deliberately put prepayment meters and fuel poverty in the title of this debate because I believe that there is a link. On 11 June, the Minister said that

“there is often an assumption that ‘fuel-poor’ and ‘prepayment meter’ are synonymous. In fact, only a relatively small number of the fuel-poor—20%—are on prepayment meters.”—[Official Report, 11 June 2013; Vol. 564, c. 60WH.]

However, the Department’s “Annual report on fuel poverty statistics 2012” showed that the highest fuel poverty rate by payment method is among households that pay for fuel using PPMs. I maintain that there is a clear link. The Minister needs to face up to that if he is to address the problem.

Customers who are moved on to PPMs are usually put on their supplier’s standard prepayment variable tariff and are therefore unable to protect themselves against price rises. Consumer Futures found in its March 2013 report, “Addressing the poverty premium”, that PPMs cost an average of £253 per year more. A report by Stratford-upon-Avon’s citizens advice bureau, “Left out in the cold: why prepayment meter users need a better deal”, said that the standard tariff is not always the cheapest and so customers who are already struggling to keep up with payments on their supplier’s cheapest tariff—perhaps an online tariff paid by direct debit—are moved to a more expensive one. Those customers are unable to access the best deals and discounts on the market or to lock into fixed-price deals. The report also found that only one of the 10 suppliers featured on comparison websites, British Gas, offered PPM users the opportunity to fix their fuel costs. Does the Minister agree that giving PPM customers the opportunity to take up fixed-price deals could be of benefit? What is he prepared to do to make that happen?

It is not just those on low incomes who may be disadvantaged by PPMs. The Muscular Dystrophy Campaign’s 2010 report, “The Cost of Living with Muscle Disease”, highlighted how for many people with neuro- muscular conditions, heating their home is essential for their muscles and mobility. Many patients are advised by their specialist consultant that they must keep their heating on at a minimum level, even at night. The report states:

“It is plainly inappropriate for people with muscular dystrophy to rely on PPMs in any circumstances”.

It says that that is inappropriate because of limited and fixed incomes, the extra costs of PPMs, and the risk of self-disconnection. Will the Minister confirm whether he has considered—or will consider—prohibiting the use of PPMs in the homes of anyone receiving the higher rate of disability living allowance or the enhanced rate of the new personal independence payment?

Citizens Advice and Consumer Futures have noted that many households with PPMs have never seen instructions on how to use or manage the meters, and have little understanding of the standing charges that apply. They conclude that that is because the meters have been inherited—a situation I referred to earlier. Consumer Futures has called for manuals to be distributed every time there is a new householder. How will the Minister ensure that consumers have better access to information about their PPMs?

Citizens Advice Scotland has found cases where levels of recovery were set too high, meaning that PPM users often sank further into debt. One customer was repaying £7 of debt out of every £10 on his meter. That same customer found that his debt had increased from around £260 to more than £600 following installation of the PPM, because the supplier had not told him the truth and had said there would be no charge for installing the meter when there was a charge. Therefore, action taken, supposedly to reduce and manage debt, had the opposite effect. What is the Minister prepared to do to ensure that energy suppliers are honest about charges for installation and removal of meters, and what more can be done to ensure that people have help in negotiating sustainable recovery levels with their supplier?

I understand that PPMs could be useful in helping consumers to reduce their debt and manage energy expenditure, and that that should be an option for consumers. For that to be the case, however, PPM users should have the same opportunities as other consumers to switch suppliers, and to have access to fixed tariffs, better and accurate information about the way their tariff works, and fair arrangements for repaying debt. The energy market as it stands does not serve the needs of consumers, and that is particularly true of vulnerable consumers and PPM users. The Government can and should do more. I hope that in the time available, the Minister will answer the questions I have raised, and I look forward to his response.