This change, which comes into effect today, will benefit approximately three million households using prepayment meters across Great Britain, ensuring that their bills align with those who pay by direct debit. The government will cover the difference, eliminating the premium previously charged to prepayment meter customers.
Currently, pay-as-you-go meter households pay more on average due to the additional costs incurred by suppliers in servicing their homes, such as collecting payments or providing vouchers. By removing the prepayment meter premium, these households are estimated to save around £21 per year on their energy bills. This move aims to establish fairness within the system and provide extra support to consumers with lower incomes who predominantly use prepayment meters.
The elimination of the prepayment meter premium coincides with the implementation of Ofgem’s latest price cap. Thanks to improvements in the wholesale market, the typical annual energy bill is projected to decrease from £2,500 under the Energy Price Guarantee to approximately £2,074. This reduction in energy costs, amounting to an average savings of £426 or 17% per household, contributes to lower inflation and fulfills one of the Prime Minister’s promises.
Amanda Solloway, the Energy Consumers and Affordability Minister, emphasized the importance of ending the historic injustice of charging more for prepayment meters. She highlighted that this change will provide vital assistance to households on prepayment meters, particularly those with lower incomes. Additionally, the government will fund the removal of the prepayment meter premium until April 2024. Ofgem, as the energy regulator, will then develop a plan to permanently eliminate this disparity.
Earlier this year, the government took action to tackle the misuse of prepayment meters by energy suppliers. Grant Shapps, the Energy Security Secretary, demanded action from Ofgem and suppliers to address wrongful prepayment meter installations in vulnerable households. The government aims to ensure that switching customers to prepayment meters is the last resort and is closely monitoring compliance with Ofgem’s new Code of Practice through regular updates from the regulator and consumer groups.
Recent figures indicate that the government spent nearly £40 billion between October 2022 and March 2023 to keep household and business energy bills affordable. This represents the largest amount ever allocated to subsidize household bills in UK history. Over the winter period, the government covered almost half of a typical household’s energy bill, saving the average home approximately £1,500 by the end of June. This support included £650 million provided to households with traditional prepayment meters through the Energy Bills Support Scheme, which issued vouchers totaling £400 over six months. As of the end of May, 85% of these vouchers had been redeemed, with an expected increase in redemption following the final applications.
