This article was originally published on 2 September. It has been republished today in light of the news that the energy crisis is pushing vulnerable people to use prepayment meters.
For those locked into fixed tariffs, the rise of the energy price cap to £3,549 for a typical household may be something to contend with in the future. But for the four million households estimated to be using top-up prepayment meters for their energy, including Leah, a mother-of-three and her family, the change is immediate.
“Every day or every couple of days I’m topping up the meter,” she told Spotlight. “It definitely doesn’t go far at all”. Prepayment meters are often used in households that have low incomes or are in debt and need flexibility managing their finances. Households pay in advance for the energy they use at a given time with a card that can be topped up at shops, or directly via smart meters installed in their homes.
Despite households with prepayment meters being more likely to come from disadvantaged backgrounds, they face a double burden. Customers absorb any increases in the price cap immediately, and those with prepay arrangements have a higher price cap – which will be £3,608 from 11 October – than those on fixed tariffs, as it costs suppliers more to operate their meters.
“I’m panicking, a little bit, because I have young children,” said Leah, 37, who lives in a flat with her husband and three children in London. “It’s not just myself, where I can just wrap up in a blanket and hope for the best… it’s the children – I have to make sure they’re warm.”
Only a few months ago, Leah recalls putting in around £25-30 per week to top up the gas and electricity in her flat. Now, it’s between £40-50. “[It’s] mostly on the electricity at the moment, because it’s been quite warm,” she said. “But we’ve had a few slightly chilly days [recently] and I wouldn’t have been able to put the heating on just because I wouldn’t have been able to afford it.”
Leah works as a supply teacher during term time, meaning that she isn’t paid during the holidays and receives Universal Credit (UC) to top up her income. She estimates that she and her husband, who is also employed, spend between 15-20 per cent of their combined income on energy bills.
Households that spend more than 10 per cent of their income on energy are defined by charities and all UK nations except England as being in fuel poverty. (England uses a “low-income, high-cost” indicator, which defines a household as being in fuel poverty if its income is below the poverty line and its energy costs are higher than is normal for its household type.)
“The number of people who have entered into fuel poverty is due to rise considerably in the next few months,” Carl Packman of Fair By Design, an advocacy group and investment fund against poverty, told Spotlight. “What will happen is that people on prepayment meters who can’t afford to adequately heat their homes, and live warm and well, will cut down on everything and will make that horrible choice between heating and eating.”
He continued: “There’s this substantial group of prepayment meter customers who are hit several times over because of its additional costs, making them pay a poverty premium.”
The “poverty premium” is what Fair By Design calls the extra cost that people on low incomes and in poverty pay for essential products and services because they can't afford more cost-effective options, including using single-item insurance instead of full contents cover, taking out high-interest loans and credit cards, using expensive non-standard billing methods, and paying for gas and electricity on prepayment meters, among additional expenses.
As Boris Johnson prepares to depart as Prime Minister, attention has turned to what his successor will do to support people with the cost of living. Government support announced earlier this year amounts to £1,200 for those on the lowest incomes.
From what has so far been discussed in their leadership campaigns, Rishi Sunak and Liz Truss’s differing plans will not cover the £1,800 that the Joseph Rowntree Foundation, a charity working to solve UK poverty, calculates families will be spending on energy usage alone over the next year.
One idea that appears to be gaining traction is to introduce a “social tariff” to contain rising costs for households on the lowest incomes. Packman envisions the tariff being targeted at those in, or at risk of, fuel poverty (currently estimated by the energy regulator Ofgem to be around 12 million households). A tapering system would be built in so that someone earning a few pounds over the help threshold is not left with any support. The discount would be applied “as a set percentage off of” the price cap, Packman adds.
“It should be mandated across all suppliers, so it's not too varied,” he continues, noting that Ofgem could work with the Department for Work and Pensions to identify those in need so they can immediately receive discounted energy. “Social tariffs in general is an idea that's not new – it doesn't surprise policymakers... it's an idea whose time has come.”
A report from the business and energy select committee also backed the idea of social tariffs – though they argue it should entirely replace the existing price cap; something Packman “strongly” opposes. Many of the UK's biggest energy firms are also broadly in favour.
Labour has outlined a £29bn proposal to tackle the crisis, including plans to scrap VAT on bills, a 12-month freeze on the previous price cap of £1,971, and to end the price disparity for those on prepayment meters.
Why hasn't the idea of social tariffs been taken up by any of the main political parties? “Labour’s leadership has already come forward with policy proposals to help the most vulnerable and is showing the political leadership that the government has been lacking,” Marsha de Cordova, the Labour MP for Battersea who has been vocal about the extra costs faced by those on prepayment meters, told Spotlight via email. “It is up to them to decide if they want to introduce social tariffs.
“My view is that we need to keep every option on the table; it would be wrong to rule out anything that can provide support to the people who need it,” De Cordova continued, adding that Sunak and Truss “haven’t learnt any lessons” from the struggles of the past few years. De Cordova took issue with Truss's use of the word "handouts" to describe extra support for the vulnerable: “I find [it] offensive. Supporting people isn’t handouts – we are in an economic emergency. It shows how out of touch she is.”
The next few months are set to be tight for millions across the country. The Joseph Rowntree Foundation predicts that families will need to find an extra £2,800 to compensate for increasing energy bills and rising inflation for essentials.
“The cost of living is affecting everywhere,” says Leah, who is planning to buy heated blankets for her family to use, as well as using oil radiators to warm up individual rooms as it works out slightly cheaper than using her heating. She only plans on turning the heating on when her family are in the same room together (“and maybe the hallway”) for efficiency.
It has been difficult, adds Leah, to protect her 13-year-old son, who likes gaming with his friends, from the realities of rising costs. “[His gaming] burns a lot of electricity and I’m constantly telling him ‘you have to cut down the amount of time you’re on the game… you can't go in the game today – there's no electric.'
“And he’ll say: ‘Mum, I’ve got some money – can I put it on the electric?’ Just so he can play games without having to stress me out,” she added.
Even with extra government support likely to come, Leah is extremely worried about what the coming winter may bring as temperatures drop – especially for the most vulnerable in society.
“I think there will be a lot of deaths, sadly. I think a lot of elderly people will suffer; a lot of people with disabilities [too], because whatever they get with benefits, they're going to have to put on their gas and electric, or buy the meagre food that they can afford with what’s left,” she said, adding: “It'll be like Covid but without the virus."
“Protecting consumers is our top priority," Ofgem told Spotlight, "and installing a prepayment meter should only be as a last resort for suppliers. We are clear that they must step in early to help customers manage debt through repayment plans. As part of our role, we have taken steps to ban installations entirely, for the most vulnerable customers."