Debt and disconnection

There has long been disagreement between the energy supply industry and campaigning agencies over the link between prepayment meter use and fuel poverty. The industry maintains that prepayment is simply one of a wide range of payment options – one that is appropriate and beneficial to certain consumers. NEA takes the view that, at the very least, a payment method that frequently incurs additional costs and encourages rationing, is a choice made frequently from necessity.

In 1987 more than 60,000 gas consumers were disconnected from supply; in 1986 more than 100,000 households lost their electricity supply as a result of non-payment of bills. In 2002 these figures had reduced to 22,000 and 1,000 respectively. The figure for gas disconnections remains obstinately high because health and safety concerns mean that, unlike in the case of electricity, prepayment meters cannot be installed in the absence of the customer.

Effective regulation of the practices of domestic energy supply companies have undoubtedly brought some benefits to low-income and other vulnerable consumers. Regulatory guidance covers many areas where consumer protection is important. Licence Conditions required by the Office of Gas and Electricity Markets specify that company codes of practice adhere to certain standards:

• Identify customers in debt and distinguish between those who ‘can’t pay’ and those who ‘won’t pay’
• Make arrangements for the repayment of any debt, taking into account the customer’s ability to pay
• Provide, where safe and practicable, a prepayment meter for ongoing consumption and repayment of debt

It seems likely that falling disconnection is largely attributable to the increased use of prepayment meters as an alternative. Whilst this option is clearly preferable to actual disconnection it does mask the extent of problems faced by many low-income households in paying for fuel. Many families and individuals who would have been identified as in difficulty with their energy costs are now anonymous, under-consuming and effectively self-disconnecting or rationing their access to energy.

Fuel Direct

Direct deductions from Income Support and Income-based Jobseeker’s Allowance for utility charges and some other regular payments has been a feature of the benefits system since 1976. The system was devised in recognition of the fact that many households found it difficult to budget for their fuel bills. A sum to cover ongoing consumption (and where relevant a sum for debt repayment) is taken from the benefit entitlement and paid direct to the fuel supplier.

Fuel direct has traditionally been seen as a payment method of ‘last resort’ but has unquestionably been a valuable option for many vulnerable households. Gas and electricity suppliers to the domestic market are required to offer this payment method and generally they, along with the Department of Work and Pensions, claim to be supportive of Fuel Direct.

Despite this ostensible support for the scheme, the number of households using this payment method continues to decline. In its present form Fuel Direct is expensive and cumbersome to administer and it seems likely that, if not actively discouraged, this payment method is not promoted. Since the only option for many consumers who could benefit from Fuel Direct is a prepayment meter this is a worrying trend.