My first order of business in Westminster this September has been to propose a simple solution to help over 200,000 energy customers switch supplier and manage their debt more easily.
An outdated regulation says that if a pre-paid meter customer has more than £200 of debt, they are not allowed to switch supplier. This can trap customers in hugely expensive tariffs, as a pre-paid meter customer could save over £100 a year simply by switching.
On Wednesday 5th September, I made this argument in Parliament, showing other MPs how some of the most vulnerable in society could be helped through this simple administrative change.
The burden of debt has become even worse for many families in the last few years. And I think the big energy companies are taking advantage of this, through raising their bills and taking healthier profits for themselves. I saw this proposal as a way of making them act a little bit more fairly and giving people more leeway on their debts.
Ofgem, the energy regulator, has, as a result, agreed to try to raise the level at which people can change their supplier. I will be pushing to ensure this is done quickly, before the cold weather sets in.
I would be interested in finding out other ways I could help you pay your energy bills, so please get in touch with me if you are struggling and feel the Government might be able to help.
Full text of speech (Check against delivery)
I beg to move that leave be given to bring in a Bill to require the Secretary of State to raise the level of debt below which pre-paid meter customers may change their energy supplier; and for connected purposes.
Mr Speaker, I raised this issue in parliament before through an oral question to the Minister for Energy and Climate Change, on 26th January 2012: Column 401 and then again in a written question, on 1st May 2012: Column 1506W. On the first occasion, the Rt. Honourable gentleman said he would ask Ofgem to look at this in detail and in the latter he said this issue was to be dealt with by Ofgem. In the interests of hundreds of thousands of energy customers, I am presenting this Bill today to get some actual movement on this simple but crucial proposal.
Through raising the level of debt at which pre-paid meter customers may change their energy supplier from £200 to £350, around 200,000 customers would be able to escape crippling energy tariffs. It’s a tiny change, but would make a huge difference. I’ve mentioned time and again how the cartel-like Big Six have too much power. By trapping disadvantaged customers into extortionate tariffs, they are proving once again that they need to be shown what it means to be fair and responsible.
The profits of the big six energy companies have gone up almost a third since 2008, and payouts to shareholders increased across the board, up an incredible sixfold since 1999 in the case of Centrica, which owns British Gas. So I would argue it is time they, and others, gave something back. If every single one of those 200,000 customers were to save the maximum amount of £138 a year, it would cost energy companies combined around 27 and a half million pounds. Sounds like a lot, Mr Speaker, until you realise that British Gas alone made 12 times that amount in profits last year. And then you consider that the money that these 200,000 people save will be spent on paying back debts to these energy companies.
I have spoken with Ofgem on this matter and in principle it agrees with me. It is, though, as usual, moving at a snail’s pace and I for one would like to see it move quicker on this simple solution to the debt issues of hundreds of thousands of people. Let’s work together to get a fairer deal for pre-paid meter customers.
In January 2010, Ofgem changed their policy, so that customers with £200 of debt or less were still able to switch their energy supplier if the new supplier were willing to take on the debt, and in most cases they were. It meant more people were able to take advantage of the great savings that can be made by switching supplier. This meant that people could pay off their arrears more easily, cutting short a spiral of mounting debt. £200 as a debt level worked then, but we could do more, and now.
Over one and a half million electricity and gas customers are currently in debt. Almost one million of these people are able to switch supplier to get better deals on their energy tariff. This proposal seeks to add 200,000 people to this figure, to ensure we have a fairer system in place.
The important bit is that these 200,000 people are among the most disadvantaged in our society and have chosen a pre-paid meter as a way of responsibly managing their weekly budget. Around a quarter of pre-paid meter customers are thought to be fuel poor and they are disproportionately represented in the social housing rented sector. We know that they are three times more likely to be in debt if their income is in the lowest quintile and so it is evident that these 200,000 are among those struggling to pay rising food costs, housing costs, and, of course, energy bills.
According to Which, 84% of people are worried about their energy bills, consumers spend one whole week a year worrying about their finances and people with less debt are often happier. So what this outdated regulation does, is add extra worry to people already concerned about job security and a double-dip recession. We see examples of people fiddling their meters to try and reduce their energy bills. The number of people doing this has has risen by 30% since 2007. I am not saying it is right that people are doing this – it’s not right and there is a price to be paid – but I am saying that I can understand why they are.
What I’m even more concerned about are the examples of people reducing their energy usage in order to save money for the debt payment instead. The number of pensioners dying from cold has nearly doubled in five years. Last winter Save the Children found that half of all families planned to turn the heating off for longer to keep their bills down, leading to problems such as children in cold homes being twice as likely to suffer from respiratory problems. I wouldn’t be surprised if some of these people are cutting down on their energy use so they have the money to pay off their debt. This is completely unacceptable, and for 200,000 people we can tackle this by giving them the freedom to make their debt more manageable through switching to a cheaper tariff or company.
These people are so badly affected by this debt and, Mr. Speaker, what is sad is that it is so easy for them to get into this position. For example, they may not have been identified by energy companies as a vulnerable customer and so are placed onto a prepaid meter after wracking up hundreds of pounds of debt while struggling to pay astronomical energy bills on a credit meter. Energy companies need to take responsibility for these confusions and mistakes and allow people to switch suppliers to help them pay off these debts.
To my more business-friendly opponents and colleagues, I could also outline the benefits of this proposal to the energy companies themselves. As it stands, 478 million pounds is owed to energy companies and so by making it easier for a large proportion of customers to pay it back, energy companies can recoup these losses. Uswitch estimates that prepaid meter customers could save £138 a year just by switching and so a £350 debt could be paid off in just over two years, without making any sacrifices. Both customers and energy companies would be better off. It’s a classic win-win situation.
These are the arguments for increasing the debt level. Now why should we increase it from £200 to £350? Firstly, the £100 limit was increased to £200 in 2010 to reflect the then higher energy bills and debt levels. Times have now changed. Energy bills have risen by 140% in eight years – 20% in the last two – , rising seven times faster than household income. And they keep on rising. SSE announced a price hike of 9% on the 22nd of August, despite a 7.7% rise in their after tax profits over the last year. And I am sure there are more price rises to follow as history will repeat itself: once one company raises its prices, the others are never far behind.
The average amount of debt is now around £350 – this is the average, not the maximum. And in the past two years we have seen severe cuts leading to a double-dip recession, making it even harder for people to pay their bills. Ofgem agrees this level is currently too low, but we need to speed up the process and get the level changed now.
Secondly, £200 is not what it used to be. Its value has decreased over 10% since this level was set. It wouldn’t buy an iPhone or a Blackberry or any other of the company phones energy company executives walk around with. It wouldn’t buy a return ticket to EDF’s global headquarters in Paris, E.ON’s global headquarters in Dusseldorf or Scottish Power’s global headquarters in Bilbao. And banks are prepared to lend out over a thousand times more than this. And yet, for an energy customer in debt, unable to switch their tariff, paying it back can be demanding and tiring. Paying back £350 can be even harder.
So if we are in agreement that we have the chance here to make a small change to an outdated regulation which will make a huge difference to hundreds of thousands of people. And that those hundreds of thousands of people are the people we need to help the most because they are so vulnerable to debt and fuel poverty. And that these customers are making responsible decisions to manage their budget and their debt. And that through being fairer, energy companies would in fact benefit with better rates of repayment. And the fact that £200 no longer reflects today’s world with rising bills and rising levels of debt. If we are in agreement with all these things, why then has this not been changed before?
The reason, of course, is that the Government and Ofgem are being too slow to respond the needs of energy customers. While energy bills have risen 20% and the average level of debt has risen to £350, Ofgem has not changed this level accordingly. It’s the same story every time, with Ofgem taking far too long to respond and the Government either having no incentive to help or simply not caring. I have taken the lead, with help from my supporters and colleagues, on this issue this time, as all of us that work on energy issues have done at some point or another, but this should be a lesson to Ofgem. Their job is to look into these issues and ensure that customers have a fair deal. I started asking questions about this in the House back in January. If they hadn’t been sorting this out then, that was their cue. But I had to ask a second time. And even then, there was no indication that the level was going to rise. I have been working on this issue now for nine months and I have only in the last few weeks had some indication that something is going to change. It shouldn’t have had to come to this Ten Minute Rule Bill before we finally started to see progress.
I could have stopped at that point and left it to Ofgem, but the sad fact is, I do not feel I can leave them to get on with it quickly. I am introducing this Bill to ensure that this level is changed before the winter. Before the cold weather sets in. I want those people struggling to pay their debt to be able to switch now so they can be given the chance to manage it and start on a better road to repayment. By the time winter comes, I do not want to hear about pensioners or families turning off their heating because they have too much debt on their meter.
As they say, with great power comes great responsibility. The Big Six have an enormous amount of power, so let’s start seeing their responsibility. So far, in all aspects of looking after their customers, they have been found wanting. They need to start prioritising their more vulnerable customers over their shareholders. I believe that raising the level of debt at which pre-paid meter customers can switch supplier is the first step in the right direction.
I have written to all the Big Six companies on their management of vulnerable customers and I call on the Government and Ofgem to do their bit and protect those who need it most.