- From 2003 to 2007, energy consumers saw massive rises in their annual energy bills, with average household gas bills increasing from £330 in January 2003 to £642 in January 2007 (an increase of 94%), and average electricity bills increasing from £242 to £388 (an increase of 60%) over the same period.
- Cuts in prices paid by consumers over the ourse of the last year have failed to return prices to their former levels – with customers’ gas bills cut by an average of 15% and electricity bills reduced by an average of 4.9%. This is despite the fact that in the last year wholesale gas prices have fallen by 50%.
- Very recently one of the main fuel suppliers announced that they would be increasing their average electricity prices by 12.7% and gas prices by 17.2%. The other main suppliers are widely expected to follow suit in the coming weeks.
- Such price rises are reversing the progress made in tackling fuel poverty, with some organisations now estimating that 4 million households may now be in fuel poverty. Increasingly, it seems possible that the government will miss its targets to eradicate fuel poverty in vulnerable households by 2010 and in all households by 2016.
- Fuel price rises have hit vulnerable people and those on low incomes particularly hard since benefit incomes and wages have not kept pace. Bureaux report a significant increase in the number of cases of fuel debt and disconnection enquiries. In 2006-7 fuel debt problems seen by bureaux rose by a third on the previous year.
- The fact that large numbers of vulnerable customers have had to bear the brunt of major price rises suggests that the market is unable to provide sufficient protection on its own and additional interventions are required to safeguard the interests of vulnerable consumers. We recommend that eligibility to winter fuel payments should be extended to the most vulnerable groups.
- The premium charged by many suppliers for prepayment meters (PPMs) disproportionately penalises those on the lowest incomes, forcing them to pay in advance and to pay significantly more than customers who pay by standard credit or direct debit. Suppliers should equalise PPM tariffs between PPMs and other payment methods for both gas and electricity.
Introduction
Citizens Advice is the national body for Citizens Advice Bureaux (CABx) in England, Wales and Northern Ireland. The CAB service is the largest independent network of free advice centres in Europe, with 430 main bureaux in England, Wales and Northern Ireland. Bureaux provide advice from over 3,300 outlets, including bureaux in the high street, community centres, health settings, courts and prisons. All CABx are registered charities.
The CAB service has twin aims: to ensure that individuals do not suffer through a lack of information about their rights; and equally to exercise a responsible influence on the development of policies and practices, both at a local and national level.
In 2006/7, Citizens Advice Bureaux in England and Wales dealt with 5.7 million enquiries, including more than 60,000 enquiries relating to fuel debt, a rise of 33% on 2005/6.
General comments
The impact of rising prices on consumers
Since 2003, energy consumers have seen massive rises in their annual energy bills, with average household gas bills increasing from £330 in January 2003 to £642 in January 2007 (an increase of 94%), and average electricity bills increasing from £242 to £388 (an increase of 60%) over the same period.
Such hefty price rises are hitting vulnerable people and those on low incomes particularly hard, especially since they have been accompanied by rises in other essential expenditure, such as water and sewerage bills (up by an average of 5.5% for the average household from April 2006) and council tax bills (the average council tax per dwelling increased by 4.7% in England in 2006-07). Benefit income and wages have failed to keep pace with such substantial increases and their impact can be seen in the significant rise in the number of enquiries relating to fuel debt and disconnection dealt with by Citizens Advice Bureaux. Annual statistics released by Citizens Advice for 2006-7 reveal that many hundreds of thousands of people are increasingly struggling to meet their day-to-day living expenses, with problems relating to gas and electricity debt shooting up by 33% on the previous year.
Large price rises have reversed some of the progress previously made in eradicating fuel poverty, with the most recent publication from the Department of Business, Enterprise and Regulatory Reform (BERR) revealing that in 2005:
“there were approximately 2.5 million households in fuel poverty in the UK; of which 2 million were vulnerable households. However, this is an increase of 0.5 million since 2004, reflecting the impact of rising energy prices on fuel poverty levels.”1
Although official figures for 2006 and 2007 are not yet available it is widely accepted that the number of people classified as being in fuel poverty will have risen considerably, with energywatch suggesting that as many as four million people may now be in fuel poverty.2
The increased flow of individual cases reported by CABx describing how clients are struggling to make ends meet demonstrates the difficulties faced by people on low fixed incomes in attempting to cope with massive rises to their fuel bills:
A CAB in Buckinghamshire reported that their client, a man with long term physical and mental health problems, came to the CAB for money advice since he had a number of priority debts to sort out. The client is in receipt of short term, lower rate incapacity benefit of £59.20 per week but his ongoing payments for gas, electricity and water account for approximately half his weekly income. Since it is difficult for him to meet essential expenditure and have sufficient available income to offer creditors, he has made the decision to not use his gas heating as he says he cannot afford to pay this and his other priority commitments.
A Lincolnshire CAB reported a case in which their clients, a young couple in their twenties in rented accommodation with good jobs and a two-year-old child, had been managing to repay debts which they had previously accumulated. However, the spate of recent household fuel rises have tipped the balance of their precarious finances and pushed them into a state where they cannot afford to maintain their repayments at current level. As a consequence they are sinking deeper into debt.
A Leicestershire CAB client, a disabled man in his fifties, came to the bureau for assistance because he was extremely worried about paying his electricity bill. His electricity supplier had increased their prices by 34% in the last year, meaning that the client was now unable to afford regular electricity payments and was faced with the prospect of getting into debt or self-disconnecting from his electricity supply.
The fact that large numbers of vulnerable customers have had to bear the brunt of major price rises without sufficient protection suggests that the market is unable to provide such safeguards on its own and additional interventions are required to safeguard the interests of vulnerable consumers.
We recommend that eligibility for winter fuel payments should be extended to people under 60 years of age including disabled people, people with a long-term illness, and households with young or disabled children.
In addition, consideration should be given to measures to encourage suppliers to offer social tariffs which provide real and significant savings for vulnerable customers.
PPM tariffs
While rising fuel prices are the root cause of affordability problems, actions by fuel suppliers have in many cases exacerbated the difficulties faced by low income consumers.
There are 3.5 million electricity and 2.2 million gas prepayment meters (PPMs) out of a total of 26 million electricity customers and 20 million gas customers. The additional amounts charged by many fuel suppliers for PPMs are a major contributory factor to affordability problems. Since those on the lowest incomes are more likely to use PPMs3 these surcharges disproportionately penalize PPM users, forcing them not just to pay in advance but to pay significantly more than customers who pay by standard credit or direct debit.
A CAB in the West Midlands reported the case of a client, who lives on his own in local authority accommodation, has a low income, and suffers from chronic lung disease. The client wanted pre-payment meters installed for his gas and electricity supply to help with budgeting but was unhappy about the fact that he would have to pay more to pay for his fuel in this way. The client considered that this is not fair for those on low incomes who are trying to budget and avoid debt.
The Energy White Paper recently quantified just how much extra PPM users have to pay for their fuel, noting “the cost differential between direct debit and prepayment meters (used by a relatively high proportion of low income households) is increasing, standing at around £120 for a combined gas and electricity bill in 2006 compared to £84 in 2005.”4
This difference amounts to 16% of the average gas and electricity bill. For someone on benefits or a low income this is money they cannot afford.
Ofgem, the gas and electricity regulator in Great Britain, attributes the excess charged to PPM customers to the fact that it apparently costs suppliers around £85 a year more to supply PPM customers than customers who pay by direct debit, and £60 more for customers who pay when their bill arrives. In addition, PPM meters are more expensive to buy and maintain than a normal meter and suppliers have to pay shops and post offices to offer top-up services.5
However this explanation fails to address two key questions:
- Why have differentials between PPMs and direct debit payments increased substantially in recent years – up by 42% in just one year based on figures provided in the Government’s Energy White Paper (quoted above)?
- Why do such large differentials not exist elsewhere? In Northern Ireland PPM users are charged only a small amount more than direct debit customers for their electricity.
Taken together, these points suggest that customers in the UK are being unfairly penalised by suppliers through having to pay higher prices. It will be important for Ofgem to address this shortcoming as part of the wider moves to introduce smart metering technology.
Suppliers should equalise PPM tariffs between PPMs and other payment methods for both gas and electricity, as this would make a real difference to vulnerable people.
Social Policy contact: Tony Herbert Tony Herbert
Parliamentary Officer: David Tinline Parliamentary
1. The UK Fuel Poverty Strategy - 5th Annual Progress Report, BERR, December 2007, P.9
2. High prices wreck fuel poverty targets, energwatch, Press Release, 6 December 2007
3. Ofgem research found that PPM usage is high among low income/social group E households, with approximately 25% of those with annual incomes below £10k using PPMs and 20% of those in social group E doing so. Ofgem Accent market research, May 2005
4. Meeting the Energy Challenge - A White Paper on Energy, Department of Trade and Industry, May 2007, p.81
5. Prepayment meters and fuel poverty, Ofgem, Factsheet 26, June 2007
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