Additional Charges for Utility Bills not Paid by Direct Debit (Limits)

Robert Halfon Excerpts

Tuesday 11th February 2014 Commons Chamber

[Robert Halfon (Harlow) (Con)]

I beg to move,

That leave be given to bring in a Bill to limit levels of additional amounts charged by utility companies on bills not paid by direct debit; and for connected purposes.

The purpose of the Bill is very simple. Energy companies should not charge people excessive amounts for the energy they use just because of how the consumer prefers to pay. Energy bills continue to rise. Gas bills have gone up by 43% since 2007. Many families are struggling to pay the high prices. To the Government’s credit, they have taken some important steps to help ease the pressure, such as forcing companies to put customers on the lowest possible tariff, providing a rebate to every domestic electricity customer, and reducing bills by £130 for 2 million of the poorest householders who are most in need.

One month ago, a pensioner in my constituency told me that her energy company had written to her to say that she would be charged an extra £63 per year unless she started paying by direct debit. She has always paid on time. Her relative then tried to pay online, but was charged the same amount, giving the lie to the reasons given by the energy companies of there being an extra administrative charge. I spoke to the energy company concerned, which told me that it charges less than most other companies, so I looked into all energy companies across the UK. Out of 26 companies that responded, five allow their customers to pay only by direct debit, while 17 charge their customers different rates, depending on the method they use to pay. Only four companies charge their consumers the same whether they pay by direct debit or not.

The companies involved say that they have to charge more due to increased costs, and all reasonable people would accept that there will be additional costs and genuine administrative charges if someone does not pay by direct debit. I had a meeting with the Post Office, however, which said that the administrative charges of sending out a bill should not amount to more than 19p per head. Some companies have added not 19p but as much as £390 more to the bills of those not paying by direct debit, and the average charge was around £80 more per year.

Figures from the Department of Energy and Climate Change show that people who do not pay by direct debit tend to spend £114 more per year, and those who use a prepayment meter even more than that. Even worse, many of the companies that charge extra did not say they were adding a surcharge, but rather that they were “discounting” the bills of those who use direct debit because they incur lower costs. That is a bit like calling a mortuary a negative patients output.

Although many people do not pay by direct debit, they are often among the most poor and vulnerable. Since starting this campaign, I have been inundated with letters from pensioners who have told me that they are hit by these extra charges. They all pay on time, but they do not like direct debit as they feel it does not give them control over their finances. They say that they put their money aside and do not want to get into debt by overspending. It is not just pensioners—anyone on a limited income might feel the same—and with the recent financial crisis in mind, that is exactly the sort of personal responsibility we should be encouraging. Some people do not have access to proper banking facilities and are therefore unable to take advantage of certain payment methods. Nearly 2 million households in the UK do not have access to a bank account that has an overdraft facility, and half a million of those do not even have access to a basic bank account that can accept direct payments. Those households are vulnerable and have extremely limited options over how they pay. It is wrong that they should be penalised.

The energy companies say, first, that their charges are cost reflective, and they back up that claim by saying that it forms part of the conditions of their licence. As I have said, I have no problem with a small administrative charge to reflect the extra cost that companies face for processing a cheque, but I do not believe that the £390 charged by Spark Energy, despite my conversations with it, is in any way reflective of the cost of sending out paper bills. Although the market has since changed, it is worth noting that in 2008 Ofgem stated in a report that the annual cost to companies of a standard credit customer was just £25 higher than a direct debit customer. Even then, it expressed concerns that those charges were not proportional.

Secondly, energy companies say that they need to charge more because of the extra cost of providing credit to customers. If something is paid for retrospectively there will, of course, be an extra cost, but many companies that charge for services retrospectively charge customers far less for not paying by direct debit than energy companies —for instance, BT charges £24 a year. Furthermore, companies should be able to meet some of these extra costs themselves, and those currently paying for their energy by direct debit often pay too much. Figures from Go Compare show that one in five accounts of energy consumers are more than £100 in credit. Energy companies sit on that money and gain significant interest from it. That does not take into account the extraordinary profits that some energy companies have been making, and I am glad that the Minister is looking into their profit margins.

The third argument is that the difference in price is due to the discount that energy companies offer to customers who pay by direct debit. As I said, however, it is not a discount; it is a premium on the 45% of people who do not pay by direct debit.

The fourth argument is that those who do not pay by direct debit are more of a credit risk. Depending on the company, about half of the premium of not paying by direct debit is made up of paying for bad debt. Is it just that those who always pay on time, such as the elderly constituent I mentioned, have to pay for other people who are late payers or who do not pay on time? Furthermore, this argument cannot be used for those who use prepayment meters, and therefore pay in advance.

Finally, there is the argument that introducing a cap will result in prices increasing for everyone. I believe in competition and I welcome the fact that the Government have extended competition in the energy market. I do not believe that prices will increase. In fact, since Members across the House began to conduct this campaign, First Utility has announced, only last week, that it is dropping its price for people who do not pay by direct debit from £96 to £24; in essence, to my recommended £2 a month, but with no price increase elsewhere.

In conclusion, the Bill calls for a thorough investigation by the Government and Ofgem into what has been going on; real transparency for consumers, so that consumers can understand why they are being charged so much if they do not pay by direct debit; and a cap of about £2 a month on the amount that companies can charge. I commend the Bill to the House.