New research reveals alarming news for UK households relying on prepayment meters: energy bills this winter could consume up to one-third of their household income. With rising energy prices and colder temperatures, the financial burden on already vulnerable families is becoming increasingly unsustainable.
According to the Resolution Foundation, around four million households with prepayment meters are expected to spend over 30 per cent of their income, after accounting for housing costs, on energy during the peak winter months of December, January, and February.
The study underlines the concerning prevalence of prepayment meters, typically installed in low-income households, many of which are rented. These meters require users to pay for energy upfront before use, adding more strain on family finances. The report warns, "as [prepayment meters] are concentrated among poorer families, this drain on family finances is unsustainable, leading to families sitting in cold, dark homes."
This financial strain is compounded by the depth of existing energy debts, which afflict over half of those households using such meters. Each time customers top up their meter, their energy debts are deducted, making it harder to manage current expenses. It aligns with disturbing statistics from Citizens Advice, highlighting 1.7 million people running out of credit on their meters last year and 800,000 suffering complete outages of gas or electricity for over 24 hours.
Starting January 1, 2025, households will experience yet another spike as the energy price cap rises by 1.2 per cent to £1,738. This follows the previous dramatic increase of 10 per cent seen just last October. Jonathan Marshall, the principal economist at the Resolution Foundation, pointed out, "For many households, the recent energy crisis is an episode they’re very much eager to forget. But for the million households on prepayment meters this winter, it will feel like the crisis never ended." He emphasized the peril of high energy costs risking households cutting back on energy use, leading to potential health hazards.
The government is taking steps to alleviate the burden, including the £150 warm home discount expected to assist approximately three million eligible households. Concurrently, around 1.3 million households will see winter fuel payments reaching up to £300. A spokesperson for the Department for Energy Security and Net Zero remarked, "We are doing everything we can to support vulnerable families this winter" and cited the efforts of Energy UK to provide £500 million of industry support to bill payers.
Integrated within these far-reaching changes are discussions about the pricing mechanisms of energy tariffs, particularly for those employing prepayment meters, who face higher costs than traditional direct debit customers. A standard dual-fuel household's bill is projected to rise by £21 per year, due to the revised cap under Ofgem, the energy regulator responsible for setting such limits.
One defining feature of the current structure is the standing charge—an unavoidable daily fee associated with connection to energy supplies. Currently averaging 61p per day for electricity and 32p per day for gas, this charge remains static regardless of energy usage, disproportionately impacting low-energy users with limited consumption.
A potential change from Ofgem could introduce greater flexibility for customers. Proposals aim for energy firms to offer two types of price-capped tariffs by winter 2025: one with the current standing charge model and another without it, featuring higher unit rates instead. This would allow consumers the ability to choose the payment model aligning with their needs.
The winter fuel payment scheme is also undergoing significant revisions, affecting over 10 million pensioners. Previously universally available to individuals born before September 25, 1957, the scheme now excludes those without certain benefits, including pension credit. Many eligible individuals do not claim these benefits, resulting in lost financial assistance during these cold months.
There are numerous avenues for additional support for energy-related financial strains. Introduced previously, the £500 million Household Support Fund is another lifeline extended until March 2025. Through this initiative, vulnerable customers can receive assistance based on their needs. The government continues to advocate for practices within the energy market to promote affordable repayment plans and direct interventions, like the Fuel Direct Scheme, wherein beneficiaries can repay energy debts directly from their benefits.
This winter is set to be particularly arduous for many households relying on prepayment meters as energy costs soar. Without substantial intervention and support, these families may continue to endure the dire consequences of the prolonged energy crisis and the lasting impacts it leaves on their overall wellbeing. Everyone is watching attentively as the government commits to ensuring adequate support measures for those most at risk.
