HC Deb 06 June 2000 vol 351 cc264-70

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kevin Hughes.]

10.31 pm
Mr. Hilary Benn (Leeds, Central)

I am grateful for the opportunity to raise the issue of fairness in gas and electricity prices. Although I want to speak principally about pre-payment meters, I am equally concerned about the problems that people experience with debt and fuel poverty. Fuel poverty has been defined as the situation experienced by households that must spend 10 per cent. or more of their income to keep their homes adequately warm. There are between 4 million and 5 million such households in England, of which about 1 million have to spend 20 per cent. or more of their income every week on energy.

Let me begin, however, by paying tribute to the steps that the Government have taken to reduce the cost of lighting our homes and keeping them warm. The reduction in VAT on domestic fuel and on the supply and installation of energy-saving measures, the introduction of the winter fuel payment for pensioners and the new home energy efficiency scheme are all examples of practical action that directly addresses the issue of fuel poverty.

This is a Government who have shown that they are serious about doing something, but there is one area in which more action is needed. I am thinking of people with pre-payment meters who are charged more for their gas and electricity than those paying by other means. Because those on low incomes are more likely to have pre-payment meters, the poor are burdened with the highest gas and electricity bills, both in absolute terms and as a proportion of their income. To put it simply, that cannot be right if we want to tackles fuel poverty.

There has been a huge increase in the number of pre-payment meters in recent years. It rose from just under 2 million in 1991 to just over 5 million in 1998. The total extra cost of gas and electricity to pre-payment meter users is now an even bigger problem than it was a decade ago. Part of the reason for the increase has been the use of pre-payment meters to deal with problems of debt. It is quite common for people in arrears to be moved to a pre-payment meter system as a way of clearing that debt, although it is the most expensive way of paying for gas and electricity.

The Office of Gas and Electricity Markets has looked at what has happened to prices since 1990. Prices have, of course, fallen for all customers and in the case of all payment methods, but the evidence indicates that the differential between direct debit and pre-payment meter prices has widened somewhat. That differential—that extra cost—is significant.

Let us imagine a street with a gas pipe and an electricity cable. Over a year, exactly the same amount of gas and electricity is supplied to the person living at No. 21—who pays bills by direct debit—and to the person living at No. 23, who has a pre-payment meter. However, national figures tell us that the person at No. 23 pays, on average, 20 per cent. mare for gas and 6 per cent. more for electricity than his or her neighbour. To make matters worse, the person at No. 23 is much more likely than the person at No. 21 to be on a low income.

How on earth can that be? It is, of course, because the utility companies charge different amounts for their product depending on the customer's payment method. Direct debit enjoys the lowest prices, followed by standard quarterly credit, whereas pre- payment meters face the highest charges.

Is there a justification for that set of circumstances? We are told that supplying a pre-payment it meter customer is more costly than supplying a direct debit one, and there is some truth in that. However, when Ofgem examined the matter in relation to electricity, it found—in a very interesting study—that, although there were some additional costs, there were also savings to the supplier. Its conclusion was that the cost of a pre-payment meter customer might reasonably be of the same order as that of a typical quarterly credit customer, yet pre-payment meter customers are charged more.

The aspect of the matter that I find hardest to fathom is that many companies give a special discount to those whom they describe as "prompt payers"—those who settle their bills quickly. I cannot imagine a more prompt payment method than paying for all the gas and electricity that one uses before one has taken even a single therm or kilowatt out of the supply, which is exactly what pre-payment customers do. However, for the privilege, they are forced to pay the highest prices. The practice is, in the jargon, counter-intuitive, although other people might describe it as a rip-off.

There is an even more fundamental argument about charging people according to what the companies describe as their "customer characteristics". Let us consider the most obvious factor that makes it more costly to supply and service some customers than other customers—the matter of where customers live. Maintaining a supply will be more expensive in a remote rural location than in a town. However, rural customers are not charged more because of that, and one can imagine the outcry if anyone tried to charge them more on that basis.

Why should some customers face a higher charge because of another characteristic—not where they live, but how they choose to pay their bill—particularly when it bears hardest on those who are poorest? It is perfectly possible to cross-subsidise to even out costs when it suits the companies to do so, and that is what should happen in this case.

The other justification sometimes offered by suppliers is to argue that not all pre-payment meter users are people on low incomes. That is also true. However, there are a lot of poor pre-payment meter users. Ofgem, in its own consultation document on pre-payment meters, which it issued last October, said clearly: pre-payment meter usage is concentrated amongst less well off households. The facts support that view. The Government estimate that a quarter of households receiving income support pay for their gas by pre-payment meter. A recent MORI poll clearly showed that use of pre-payment increases among lower socio-economic groups, with more than 50 per cent. of one-parent families using pre-payment meters to pay for electricity and 40 per cent. of such families using them for gas. Regardless, that justification is not an argument for doing nothing.

There is one final way in which low-income pre-payment meter customers are disadvantaged, in that the cheapest gas and electricity—for hose paying by direct debit—is denied to those who do not have a bank or building society account. Therefore, once again, it is the poor who lose out.

The British Bankers Association estimates that between 6 and 9 per cent. of the population—3 million people—do not have access to a bank account. The national right to fuel campaign reports that research done for "Competition Monitor" found that 30 per cent. of pre-payment meter users did not have a bank account. It is, of course, an issue not only for the energy companies—it goes to the heart of financial exclusion in our society. However, could we please have action so that no longer are people without bank accounts denied access to the cheapest and easiest way of keeping their homes warm and lit?

I should like to make it clear that I am not opposed to pre-payment meters in principle—far from it. Many consumers find such meters a convenient and controllable way of paying for their gas and electricity, although the meters do not in themselves solve the problem of fuel poverty, as they can still result in self-disconnection when people have literally run out of money. It is clear, however, that the practice of overcharging needs to end. There are many who share that concern, such as the Gas Consumers Council; the national right to fuel campaign; the Trade and Industry Select Committee, which has examined the matter in detail; and the Public Accounts Committee, which has said that it is time that pre-payment meter customers benefited from the liberalised gas market.

So what action is needed? First, we need action by the suppliers, some of which have a better record than others. However, despite competition, pre-payment meter customers are still getting a raw deal. Part of the reason for that is to be found in the impact of competition. Established companies are afraid to even out their collection costs across their own customers for fear that that might result in new entrants to the market cherry-picking their most valuable customers—those who pay by direct debit.

Having said that, British Gas at least charges pre-payment meter users the same as standard quarterly credit customers, and according to the Gas Consumers Council it has the lowest charges for pre-payment meters of any of the gas suppliers. In the light of competition, I wonder why it is that all the other gas suppliers are charging their pre-payment meter customers so much more.

I am aware, of course, of the recent launch by TXU of its StayWarm scheme, which is being trialled in Yorkshire. It is aimed specifically at people on low incomes. In return for a regular agreed payment, the customer can have as much energy as he needs without having to pay anything extra or worry about bills. Let us have more innovation of that sort.

For example, given that customers without bank accounts are made to pay higher prices, why cannot the banks and the utility companies get together jointly to market a product that makes banking available to low-income customers and enables them to pay the lowest prices for their gas and electricity? What about some further innovation in pre-payment meter technology to bring down costs?

Secondly, we need action by the regulator. The regulator now has to have regard to the draft statutory social and environmental guidance, which was issued in February. Under the Utilities Bill, he has an explicit duty to protect the interests of consumers … wherever appropriate … including individuals with low incomes. "Wherever appropriate" has not yet been defined, but I cannot think of a better case than the current overcharging of pre-payment meter users, where the evidence makes it clear to me that competition per se will not deal with the problem. I believe that the time for intervention has arrived.

Ofgem has taken some action in announcing that the price differential for electricity pre-payment meters should he capped at £15 per annum, but why should there be a differential at all? However, the overcharging for gas is much greater. In its recent document on meter liberalisation, Ofgem has proposed that the annual surcharge levied by Transco on suppliers for operating PPMs should increase by 50 per cent., from 10 to £15. Unless that is offset by reductions elsewhere on the Transco charge, that could further increase the price differential and so add to the cost disadvantage that PPM customers already bear.

In preparing for the debate, I learned quickly that the issues of regulation are highly complex. However, I am sure that where there is a will there is a way to sort out this problem. Yorkshire Electricity, for example, with which I have been in correspondence, has suggested that the cost of pre-payment meters could be shared across all suppliers through the introduction of a social levy.

Finally, we need action by Government. An important and significant step has been taken to put the consumer at the heart of regulation through the Utilities Bill. Clauses 68 and 97 give the Secretary of State the power to make an order on price levels in cases where in his opinion members of any group of customers are being treated less favourably than other customers.

That is exactly what is happening, and if Ofgem will not act I sincerely hope that my right hon. Friend the Minister will use the powers that are available to her. In particular, it would be helpful to know how long Ofgem will be given to sort out the matter before my right hon. Friend steps in to introduce a scheme.

In conclusion, this is an issue of fairness. People who are poor should not have to pay more than others to heat and light their homes. I represent many people who work hard to get by on low incomes. In my opinion, we should not tolerate for one moment longer a system which penalises them in practice because they are poor.

10.44 pm
The Minister for Energy and Competitiveness in Europe (Mrs. Helen Liddell)

I congratulate my hon. Friend the Member for Leeds, Central (Mr. Benn) on securing this debate. I am aware that he has taken a considerable interest in pre-payment meters. He has asked a number of questions and has raised the issue on more than one occasion. I congratulate him also on a well-reasoned and rational speech that contained almost nothing with which I would disagree. He has made the case effectively and eloquently for action to deal with the issues of pre-payment meters.

My hon. Friend is right to associate the issues of pre-payment meters with fuel poverty. Many of those who use pre-payment meters in my constituency and, indeed, in yours, Mr. Deputy Speaker, do so because they are frightened of the risks of running into debt. They must budget closely for their energy requirements.

My hon. Friend is right to point out that, just because someone uses a pre-payment meter, that does not necessarily mean that they are the fuel poor. Many others do so—for example, those who rent out accommodation to students or as holiday lets—so it is not an accurate assessment just to extrapolate across. However, those of us who represent constituencies with considerable deprivation are well aware of the extent to which pre-payment meters are used by the fuel poor.

My hon. Friend is right to draw attention to the fact that, as the Government have taken action to drive down electricity and gas prices, one of the challenges that has arisen is ensuring that those who use pre-payment meters benefit from the competitive pressures that drive down prices in the same way as everyone else. It is another indicator of social exclusion. The Government regard eliminating social exclusion as one of their major tasks. Tackling fuel poverty is an important aspect of that work.

Fuel poverty is about not just energy issues, but housing, health and ensuring, for example, as my hon. Friend has said, that banking facilities are available to those who have never felt able to open a bank account. It is for that reason that I have established and chaired a cross-departmental working group on fuel poverty, which will report in the autumn and which is looking at those issues with a view to ensuring that all the various aspects that contribute to fuel poverty are taken into account.

Fuel poverty is an easy phrase to say, but the reality of it is that people have to prioritise between keeping warm or buying food. Often, it can lead to deaths. There are social costs related to those deaths, but, if we look just at the cost to the most vulnerable members of society, it does not bear thinking about.

The issue of dealing with people on pre-payment meters is initially one for the industry. I have challenged it to take on board the difficulties that people on pre-payment meters have to deal with. Many of the arrangements that are made for those on pre-payment meters are discriminatory. For example, there is the issue of transferability of debt. Often, people who have got into debt are forced on to pre-payment meters. Often, they are running to stand still.

I had one case in my constituency where a woman was wrongly accused of having run up bills of several hundreds of pounds because of a fault in her pre-payment meter, which kept tripping on to the emergency tariff time after time. She could get little redress because she did not have a strong enough voice to secure that redress. I was glad to be able to do something to assist her.

It is important that the industry itself take up the challenge. My hon. Friend has referred to the fact that British Gas has acknowledged that there should not be discrimination towards those on pre-payment meters. At the moment, companies are not allowed to cross-subsidise one group of customers at the expense of another. He is right to point out that, in the Utilities Bill, which is in another place, there is provision for a reserve power on cross-subsidisation.

I will regard it as a failure on the part of industry if those cross-subsidisation powers have to be used. I have challenged the industry to come forward with proposals. The Electricity Association Services Ltd. has set up a taskforce that is looking at issues of fuel poverty, among them the discrimination that is contained within pre-payment meters, but I challenge the chief executives of the energy companies to make it one of their priorities. One of the difficulties that we have traditionally had with fuel poverty is that dealing with it has been the responsibility of junior members of companies who do not have the clout to drive through the changes that are required.

The Government will not hesitate to use the cross-subsidisation powers if the industry fails to do so, but the quickest and most effective way of ensuring that we get rid of the distortions for the most disadvantaged in our society is for the industry to take action.

Companies are beginning to come forward with ways of helping poorer consumers, some of which are very imaginative. For example, just two weeks ago, I launched the TXU scheme that my hon. Friend spoke about. Aimed at those on benefits, it is an imaginative way of trying to ensure that the customer and the company agree an annual price for electricity and gas. It will be interesting to see how that programme works its way through. The fact that I want to associate myself with the programme shows the extent to which the Government are interested in the issue.

The Chancellor's Budget announcement of tax concessions for the affordable warmth scheme is another sign of the extent to which the Government are trying to help the companies to take the necessary action to address issues of fuel poverty. One of my Department's priorities is to ensure that energy bills for most customers come down. Prices have come down over the past five years, but my hon. Friend is right to say that direct debit customers have retained a price advantage throughout that time. The latest figures for 1999 show that average annual bills for pre-payment customers are about £50 higher for gas and £27 higher for electricity than for those paying by direct debit. The difference with customers paying on standard quarterly credit is much less—about £13 for gas and £17 for electricity. It is important to address the differences.

My hon. Friend referred to the regulator and the new structure of regulation that we are introducing in the Utilities Bill. It will ensure that our system of regulation gives precedence to the consumer. The regulator published a social action plan in March that included several measures directed specifically at helping customers using pre-payment meters. Ofgem, the new regulator, will be modifying supply licences to limit the pre-payment meter surcharge to a maximum of £15 for gas and electricity. We hope that the companies will be able to do much better. Ofgem will bring new licence conditions and codes of practice for suppliers, setting out the services that pre-payment customers should expect, including the distances that customers need to travel to recharge their meters and action to rectify faults. People on pre-payment meters often find themselves doubly disadvantaged because action is not taken quickly enough to rectify faults in their meters.

Ofgem will also look at ways of promoting competition to improve meters and services. We are in the 21st century. It should be possible to deliver smart meters that can deal with some of the complex pre-payment issues. Ofgem is supporting research into ways of encouraging pre-payment customers to switch to other payment methods. Other banking institutions can be used. Credit unions are often a useful way of encouraging the disadvantaged into a situation in which they can get the benefits and financial services that the rest of us take for granted.

Ofgem is also supporting research into the extent and significance of self-disconnection and rationing by pre-payment meter consumers. Those are sophisticated phrases to describe people who deprive themselves of light and heat because they cannot afford to take the risk of switching on their cooker or their lights. Ofgem is consulting with the industry about the removal of the right of suppliers to block the move of consumers to cheaper competitors if the consumers have debt—and many pre-payment meter customers have debts.

Notwithstanding those difficulties, there has been an increase in the number of pre-payment meter customers in this country and we must try to understand why. The issue of pre-payment meters is complex and does not relate solely to energy price or fuel poverty. However, the Government, the regulator and the industry have to work together to take a range of steps to address fuel poverty across the board and to ensure that all consumers share in the benefits of the liberalised markets that are driving down energy prices. It is important to ensure that pre-payment meter customers are not disadvantaged. Not all are disadvantaged but, sadly, many of the most vulnerable are.

I congratulate my hon. Friend the Member for Leeds, Central on securing the debate, and I hope that those who take decisions in the energy companies read his speech. Certainly it will be required reading for the regulator, because my hon. Friend has made a number of important points that the regulator must look into. However, at the end of the day, it is the responsibility of the industry, the regulator and the Government to ensure that the benefits of modern energy markets are shared by all and that we do not have a situation in this day and age where people are frightened to avail themselves of energy and put themselves through great hardship because of that fear.

Question put and agreed to.

Adjourned accordingly at three minutes to Eleven o'clock.