8 October 2008

The energy supply statement from Ofgem on 6 October sets out the facts about the differential rates for the various ways of paying for fuel and they do not tell a simple story about unfairness to the poor.

Paying by prepayment meter is about £118 a year more on average than paying by direct debit and paying quarterly by cash or cheque is about £80 a year on average dearer. For more than four million households in rural places, including villages in Cornwall, mains gas is not available and they lack the reduced rates that come with competitive dual fuel tariffs, paying about £55 a year more than if they had access to dual fuel deals. These figures depend on the level of fuel consumption which varies among households.

Of course prepayment and quarterly arrangements cost the companies more to collect and administer than direct debit payments but the differential is greater than that and although the report says the differential in prepayment charges are cost-justified I think the figures suggest a small premium is paid by customers.

It is a commonplace of concern that the poor and the fuel-poor (those who spend more than ten percent of their income on domestic fuel) are using prepayment meters and quarterly payments and are thus paying more for their fuel and energy than the well-heeled paying by direct debits. The Ofgem report is clear that this simple picture is misleading.

Not everyone who pays by the higher rate methods is poor and not everyone who has no access to mains gas is poor, but many are. Not all the poor/fuel-poor pay by the dearer methods but certainly they are concentrated in there; for example the quarterly payment method is the most common payment method among the fuel-poor and just over half of prepayment meter customers are in the bottom two social groups, D and E.

A blanket reduction of the dearer tariffs, removing the unjustified premiums, will help the poor/fuel-poor but also help others on those arrangements. A little has been done but much more is required to target fair, and even subsidised, charges on the poor/fuel-poor. Ofgem is holding a consultation until 1 December 2008 about its report and I hope people and groups in Cornwall will respond and advocate definite help for people who plainly need it: the aim should be to reduce prices for the poor.

The Ofgem report helpfully distinguishes between those who are poor/fuel-poor and vulnerable customers who also include those who are sick or disabled and who also need help in accessing the best financial deals.

These price differentials and barriers should have been tackled definitively so far as they impact upon the poor and vulnerable a long time ago. Better late than never, I suppose. If all goes well next year should be a little warmer and cheaper for many in Cornwall. The Labour government’s winter fuel payment will help people (though it is not targeted on the poor), as will, eventually, lagging; but high prices need more than revised tariffs, winter fuel payments, and lagging, and the government appears unimaginatively unable or unwilling to help.