Prepayment meter customers to pay less for energy from July, Chancellor says
Prepayment meter customers typically pay more for their energy than those paying by direct debit. But the Chancellor Jeremy Hunt says from 1 July the "prepayment penalty" will end, cutting bills for over four million households.
The change is expected to come into effect from 1 July through updates to the Energy Price Guarantee, with the full announcement on the reform to come in the Chancellor's budget on Wednesday 15 March.
Prepay households will save an average of £45 a year on their energy bills as a result of the move, according to the Treasury, and will no longer pay more compared to people on direct debits. Currently, the extra cost for energy firms to manage meters – such as supplying vouchers and collecting payments – is passed on to customers.
Charity Citizens Advice estimates about 600,000 people were forced onto a prepayment meter in 2022 because they couldn't afford their energy bills. However, regulator Ofgem recently told energy firms to temporarily stop forced installations of prepayment meters (including remote switching of smart meters to prepayment mode).
If you're struggling to pay for energy, see our Energy bill help guide.
Martin: 'This is good news. It's unfair to charge those on prepay, many of whom are the poorest in society, a premium'
MoneySavingExpert.com founder Martin Lewis gave his initial reaction to the announcement that prepay customers won't be paying more from July:
This is good news. On my TV show last week, I put exactly this question to energy secretary Grant Shapps, ‘Why do people on prepay pay more?’. They shouldn’t. It’s unfair to charge those on prepay - many of whom are the poorest in society - a premium, especially as they need to find the money in advance.
Yet while I welcome the move, which does indeed bring prepay customers parity with direct debit customers' costs, that is only because there currently aren’t any cheap switchable tariffs available. If and when they come back, they are usually only for those who pay by direct debit, and rarely offered to those on prepay tariffs, and that’s where the big differences in cost come from.
It’s also worth remembering costs won’t come down for those who choose to ‘pay in receipt of bills’ who pay typically pay 10% more. They would be better switching to variable direct debit tariffs which work a similar way.
What does the Government say?
Commenting on the announcement, Mr Hunt said: "It is clearly unfair that those on prepayment meters pay more than others. We are going to put an end to that. From July four million households won’t pay more than those on direct debits."
Energy security secretary Grand Shapps added: "Charging prepayment meter customers more to receive their energy is a tax on some of our most vulnerable – this change will stop that.
“It’s even more important at a time Brits are faced with high energy costs and when we’ve seen vulnerable households wrongly forced onto them. While actions I’ve pushed for have meant forced installations are on pause, warrants aren’t being waved through and Ofgem is toughening up its reviews, our changes will make sure families aren’t penalised simply for how they heat their home."
On a prepayment meter and struggling to pay? There is help available
If you're worried about paying your energy bills or you're already struggling, there is help out there.
Households have been given £400 to help with fuel costs – if you're on a traditional (non-smart) meter, don't forget to claim it. It has been paid monthly (in £66 or £67 instalments) by your supplier from October 2022 until March 2023 and most households should have received at least five payments by now. If you're on smart prepayment, it should have been credited to your electricity account automatically (though some suppliers let you move it to your gas meter) within five working days of the start of the month.
If you have traditional (non-smart) prepayment meters, you should have gotten a voucher each month, usually sent within 11 working days of the start of the month (by text, email or post), and most let you use it on gas or electricity when you top up as normal. If you've not got your vouchers, lost them or had one expire, see full prepay voucher help. You must use all vouchers by 30 June 2023.
All suppliers offer small amounts of emergency credit. Usually £5 to £10 credit after your top-up runs out. But when you dip into the emergency credit it doesn't charge your standing charge (the fixed charge you pay daily just to be connected), so the next time you top up you have to play catch-up.
"Friendly credit" prevents you being cut off during certain times of the day or certain days of the week. If you start running out of credit when the shops are closed (for example during evenings, weekends and bank holidays), which stops you being able to top up, you won't be cut off.
Many providers have hardship funds to help those in debt. Find out if you can get help through a supplier hardship fund.
Many suppliers have said they won't collect debt from prepayment customers this winter. See what your supplier is doing to help.
You can also see our Struggling with energy bills guide for full, step by step help.
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3 September 2024
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