FUEL DIRECT

Introduction

Fuel Direct is generally considered a payment method of last resort for particular consumers who experience major difficulties in budgeting. Access to Fuel Direct requires that a domestic consumer should be in debt for gas or electricity and that they should be in receipt of Income Support, Income-based Jobseeker’s Allowance or Pension Credit. In order for a Fuel Direct arrangement to be set up it is necessary to secure the agreement of both the Department for Work and Pensions and the energy supplier. The operation of Fuel Direct involves direct deduction from benefit for both current consumption and for debt recovery. The debt recovery rate is set at £2.90 per week although this can double if there are existing debts for both gas and electricity. Fuel Direct is now known as the Department for Work and Pensions’ Third Party Deduction system

Access to Fuel Direct

In theory this should be straightforward since both the DWP and utilities maintain their support and commitment to Fuel Direct. Indeed the option of Fuel Direct as a payment method is a requirement of the Licence Conditions of suppliers of gas and electricity to domestic consumers. However, despite these assurances, there is clearly a major problem in accessing the scheme. The administration costs associated with Fuel Direct are high, partly because there has been limited progress in automating arrangements and this makes the scheme unpopular with energy suppliers and with the Department for Work and Pensions. Figures for households using Fuel Direct have been in significant decline over the past decade.

Year	Fuel Direct Arrangements
1992	290,000
1993	280,000
1994	305,000
1995	285,000
1996	168,000
1997	153,000
1998	109,500
1999	77,500
2000	63,900
2001	56,000
2003	50,000
2004	45,960
2005	49,147

The slight upturn in the incidence of Fuel Direct in 2005 may be an indication that energy suppliers anticipate increased levels of consumer debt following dramatic energy price increases and see the value of Fuel Direct as a debt management tool.

Whilst there may be acceptable reasons for an element of this general decline, such as fewer eligible households on Income Support or a wider range of acceptable payment methods offered by energy suppliers, NEA believes that reductions in Fuel Direct arrangements reflect the fact that economic interests take precedence over the interests of these particularly vulnerable consumers.

Drawbacks of Fuel Direct

NEA acknowledges the imperfections of Fuel Direct. Not only is it currently an expensive and cumbersome system, there is also a view that the breaking of the overt link between energy consumption and payment leads consumers to believe that the Department of Work and Pensions has assumed responsibility for energy costs. Clearly where this misconception occurs there is a danger that consumption will increase over and above the level for which deductions are being taken.  This, of course, will lead eventually to increased debt and additional problems.  However NEA believes that this is an exaggerated concern and that a sensible discussion of the operation of Fuel Direct prior to its implementation should prevent any misunderstanding. A clear understanding of the operation of the system should be supplemented by a commitment to regular reviews of consumption and payment levels.

The Future of Fuel Direct

The Department of Work and Pensions reiterated its support for Fuel Direct in February 2002: “The fuel direct scheme provides valuable, last-resort protection against the threat of disconnection for people in receipt of income support and income-based jobseeker’s allowance who are in arrears with their utility bills. Fuel companies generally make customers who have fallen into arrears aware of the scheme”.¹ Whilst the first part of this comment is accurate, NEA has no reason to believe the second part and there seems to be little evidence to justify it.

The future of Fuel Direct probably lies in expanding its client base and in optimising the efficiency with which it is administered. In a review of the direct deductions system in 1997, “Review of Income Support Direct Payments for Fuel and Water: Report and Recommendations” the Department of Social Security discussed a Household Budgeting Scheme which could, in theory, allow all 13 million people who collected their weekly benefit from the Post Office to make cash direct-debit type payments to companies.

This scheme would closely follow a successful model established in the Republic of Ireland although, in order to preserve the advantages of Fuel Direct, it would be necessary to introduce a contractual obligation to maintain regular payments whilst participating in the scheme. This would mean a continuation of direct deductions at source for current consumption and for debt. This model endorses the views of Ofgem’s Working Group on Fuel Direct which reached broadly similar conclusions.² 

Updated: 25/04/2007