In our response to Ofgem’s consultation, we warmly welcome the government’s promise to make sure the price of energy is the same for customers who use prepayment methods as it is for customers who pay through direct debit.

But it’s concerning to see that standard credit customers could really lose out depending on how things go…

Ofgem’s Levelisation of payment method cost differentials: a call for evidence asked for views on whether Prepayment Meters (PPM) and Standard Credit (SC) customers should continue to pay different amounts for their energy compared to Direct Debit (DD) customers, particularly where vulnerable customers may account for a higher proportion of consumers on PPM and SC compared to DD.

You can read our full response here.

Prepayment meter customers should have fair access to the energy market

At CSE, along with our partners National Energy Action, we’ve been raising the issue of unfair treatment for PPM customers for many years.

CSE wholeheartedly welcomes the government’s commitment to levelise the cost of energy for prepayment customers when compared to direct debit. As shown by the CMA energy market investigation in 2016 customers on prepayment meters are more likely to:

• Have lower incomes.
• Be disabled.
• Be a single parent.
• Or be more than one of disabled, single parent and carer.

Through our direct experience of supporting these customers with energy advice over many years, we know they are particularly vulnerable, at higher risk of fuel poverty and have not been able to benefit from active participation in the energy market.

We urge Ofgem to take a more ambitious approach to levelising fuel costs

Following Ofgem’s initial UNC modification 0840, customers on standard credit will face bills that are £200 higher than those on direct debit.

Similarly, to prepayment meter customers, those on standard credit also demonstrate a higher level of vulnerability often being older, on lower incomes and having lower levels of financial literacy.

Both prepayment meter customers and those on standard credit have higher proportions of fuel poverty according to the LILEE indicator (based on 2022 data).

The current approach to calculating the price cap allocates more costs associated with debt to these payment types. This is counter productive because the system is placing more costs on those households that are least able to afford their energy in the first place.

By increasing the burden on the most financially vulnerable households it’s also increasing their likelihood of getting into dept or further dept.  

A long-standing argument to support these differentials is to provide an incentive for households to switch to direct debit. Households use direct debit for convenience rather than purely for financial gain, the time saved in dealing with their energy costs has its own non-financial benefit for example, time saved.

But since 2020, the payment differential between standard credit and direct debit has grown substantially, from £85 to more than £200. However, the number of households using standard credit has simultaneously grown in that period.

Working with vulnerable households

In our experience of working with vulnerable households this trend is driven by people’s inability to afford their energy costs and a lack of control over their direct debit payments (which suppliers change without their agreement).

The best way to increase the numbers of people on direct debit would be to make sure they are able to afford their energy costs.

To make the energy system fairer, particularly for the most vulnerable customers struggling to pay their bills, all payment methods should be levelised.