Households with pre-payment meters could be shelling out around £700 per month to heat their homes when the cost of energy rises from October. Around four million customers use pre-payment meters in the UK.
People with pre-payment meters top them up themselves, paying for what they use in addition to a daily standing charge. Customers who use the pay-as-you-go method top up a key or card at a Post Office, PayZone or PayPoint before inserting it into the meter.
Those with smart pre-payment meters can top it up online or, in some instances, through their energy provider's app. Such households are likely to be hit the hardest by the rising cost of energy as they tend to have lower incomes than customers who pay for their energy via direct debit.
The industry regulator Ofgem confirmed last week that the energy price cap will jump 80% to £3,549 on 1 October 2022. Experts are predicting that this will rise even further when the price cap is reviewed again in January.
The soaring cost of energy coincides with when demand is at its highest over the winter months. Analysts at the Resolution Foundation think tank say energy costs will be three times higher than were last winter at around £500-a-month for the average household.
But it says those with pre-payment meters could face the biggest burden as they are unable to balance their bills over the course of a year. Typical energy bills in January alone could reach more than £700 - over half of their disposable income for the month.
The Metro reported that Ofgem data received by DebtBuffer via a freedom of information request shows that in the first quarter of this year almost 300,000 homes had their gas and electricity prepayment meters set to recover debt at top-up. This is highly alarming for some of the most vulnerable households.
Analysis by DebtBuffer found that pre-payment customers who slide into arrears on their agreed weekly debt payments or use emergency credit face 100 per cent of electricity top-ups and up to 90 per cent of gas top-ups being used to pay off arrears before any credit can be spent on energy usage. It means people in this position are at a greater risk of falling further behind and facing disproportionately large debts.
DebtBuffer also analysed how each of the UK's most popular energy providers charge their customers who use pre-payment meters to recoup emergency credit and repayment arrears. Heather Rose, the company's head of debt help, described the findings as "shocking".
She told Metro: "Throughout the whole of 2021, the number of customers repaying gas debts has risen every quarter. Unsurprisingly this data carries on into Q1 2022 and unfortunately we expect it to rise at a far higher rate into this year."
She claimed that energy firms are "increasingly making use of court warrants to force customers who were on monthly direct debits, onto prepayment meters where these meters are then set to recover their debts in weekly payments". She added that suppliers had been allowed 187,000 warrants to forcibly install pre-payment meters in households.
If customers fail to top up enough to pay any debt on their electricity meter, it will display the total of everything it couldn't take on-screen. When they next top up, it will use those funds to clear the debt before they can be used to pay for electricity.
Rose added: "To automatically deduct 100% of any electricity arrears and up to 90% of any gas arrears before any credit can be used to heat or power households is simply not good enough, in fact, it borders on callous."
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