Eliminating the price penalty of prepayment meters should only be the start of reform.
The cost of our energy has rarely been such a big topic for households across the UK.
The hikes to wholesale costs, in part due to the Ukraine war, has meant that we are paying record amounts.
And while the Government has stepped in with its Energy Price Guarantee, the reality is that even with this support our energy bills are incredibly expensive by historical standards.
It’s not just the cost of our bills, but also the energy meters used to track our usage that have come under the spotlight of late too.
Now it seems that the Government is set to crack down on a particular rip-off associated with prepayment meters in the Budget this week.
The prepayment meter problem
Being on a prepayment energy meter presents millions of households with some real financial issues.
First and foremost, there’s the fact that the unit cost of the energy is higher than you will pay with a regular tariff which you’d pay through direct debit.
Given that households that are placed on these meters are often low income, and have been moved because of missed or late payments in the past, it seems doubly painful that they then have to pay more for their energy.
Then there is the question of budgeting.
I have some level of certainty when it comes to how much I will be paying for my energy use every month ‒ my supplier works out what I’m likely to pay over a year, and divides that sum into 12 equal monthly payments.
As a result, I pay the same each month, irrespective of whether I’ve had the heating on a lot or not.
That’s not the case with prepayment meters ‒ you have to put the money into the meter before you can use that energy.
It means that during the cold, winter months when you’re more likely to need the radiator on, you will end up having to put more money onto the meter than during the summer.
This makes budgeting really difficult since you need to have extra cash to hand during those winter months.
Given this, and the ongoing cost of living crisis, it’s perhaps not a huge surprise that there have been reports of households essentially disconnecting themselves.
They don’t have the money to put onto the meter, so have no option but to sit in the cold and dark.
There are accessibility issues to overcome too. If you are on a prepayment meter you not only need to keep track of the remaining balance on the meter, you also need to head off to a local top-up point in order to put more money on.
That isn’t always easy if the local top-up point is a decent distance away, or if you need to try to fit it in around childcare, for example.
For more, read our guide on how prepayment, credit and smart meters work.
Putting an end to the price penalty
However, it looks like the higher prices paid by households on prepayment meters will be coming to an end.
Ahead of the Budget this week, the Chancellor declared that the higher costs were “clearly unfair”.
As a result, the energy regulator Ofgem will be reporting on how to eliminate that price penalty when the Government’s current energy support schemes end in April next year.
As things stand, the Treasury reckons that being on a prepayment meter is likely to cost you an extra £45 on average on your energy bills.
It is obviously welcome that the Government has grasped that this bizarre discrepancy is unjustifiable, though I think it’s fair to question why it has taken quite so long to reach this stage.
It’s not been a secret that prepayment deals are more costly, but when energy tariffs were considered more ‘affordable’ it evidently wasn’t considered something worth acting on.
In other words, unfairness is fine so long as people don’t notice.
Treating people fairly
Prepayment energy meters have been under a much greater spotlight of late, and with good reason.
Recent months have seen swathes of households moved onto meters as they have encountered repayment issues, thanks to energy costs skyrocketing.
This has included households on smart meters, who can be converted remotely, with some claiming they weren’t actually notified by their supplier.
We have also had suppliers exposed for some incredibly unethical behaviour when it comes to moving households onto these meters, even households that are vulnerable and so should be exempt.
It’s led to Ofgem introducing a temporary ban on households being forced onto prepayment meters, with suppliers expected to explain precisely why they have moved specific households.
If prepayment meters have to exist, then it’s clear that they need far greater oversight from the Government and regulators alike to ensure that people aren’t ripped off and aren’t forced to move to these tariffs unfairly.