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PREPAYMENT ENERGY CUSTOMERS OVERPAYING BY NEARLY £90 MILLION A YEAR

PREPAYMENT ENERGY CUSTOMERS OVERPAYING BY NEARLY £90 MILLION A YEAR

comparethemarket.com research reveals that some of the most financially disadvantaged consumers pay more than standard meter customers for their energy

Published: 15/06/2020
  • Over 4 million* prepayment meter energy customers are overpaying on their energy bills by an average of £94 a year
  • Almost two thirds (64%) of prepayment customers are on a standard variable tariff, compared to 32% of non-prepayment customers
  • Only four fixed tariff deals are available for prepayment customers, compared to 283 tariffs available to those with a standard credit meter

Embargoed until 00:01, 10 June 2020 – Households that use prepayment meters are paying significantly over the odds for their energy when compared with those on a standard credit meter. New research from comparethemarket.com reveals that 4.1 million customers are each paying on average £94 more a year for their energy than they would pay on a standard credit meter. Nationwide, this equates to a combined overpayment of more than £389 million annually.
 
Prepayment tariffs, like standard tariffs, can be either fixed or variable. The research finds that the cost differences between tariff types are significant, especially for those on lower incomes:

Energy Tariff Annual Average Cost Cost Difference
Prepayment
Fixed Tariff
£1,009 £33
Standard Credit Meter
Fixed Tariff
£976
     
Prepayment
Standard Variable Tariff
£1,195 £39
Standard Credit
Standard Variable Tariff
£1,156

Almost two-thirds of (64%) of prepayment customers are on a supplier’s standard variable tariff (SVT), with the average annual cost £1,195 – £39 more than a non-prepayment meter SVT. The difference is equally pronounced when comparing a fixed term prepayment meter tariff with a non-prepayment meter fixed tariff, with the prepayment meter being on average £33 more expensive a year.
 
As well as greater annual savings for customers on a standard credit meter, the propensity of these customers to switch providers is higher; only 32% of standard credit meter customers are on a typically more expensive SVT.
 
The annual difference in price between the average prepayment customer on an SVT versus a customer with a standard credit meter on a fixed term tariff is £219 per year. When compared to the cheapest fixed credit meter tariff on the market, the cost difference is currently a stark £431 per year. 

An uncompetitive energy tariff market

A lack of switchable tariffs available to prepayment customers could be driving the wide price differential between these customers and those on standard credit meters. There are 283 tariffs currently available for non-prepayment customers but just four fixed prepayment meter tariffs for customers to switch to. Likewise, for prepayment customers there are only 45 variable tariffs available compared to 91 for customer on an SVT with a standard credit meter.
 
Previous analysis by comparethemarket.com found that lower income households spend, on average, £60 more every year on their energy bills than higher income households. This is due in part because lower income households are more likely to be on an SVT and not switch provider.

Peter Earl, Head of Energy at comparethemarket.com, said:

“It is hugely concerning that prepayment meter customers – some of whom are undoubtedly classed as vulnerable – are paying considerably more for their energy on average than those on a standard credit meter. According to the latest government fuel poverty statistics over 2 million households are living in fuel poverty. British Gas’ swift reversal of its decision to only allow top-up of its prepayment meters by a minimum of £5 earlier in the year underlines how far consumers struggling to make ends meet must make each pound go.
 
“A lack of competition in the prepayment meter market is likely a factor in these customers being offered poorer value deals in comparison to the majority of UK energy customers on standard credit meters. With limited options available, it would not be surprising if prepayment meter customers are deterred from switching supplier to secure a better deal. Encouragingly, many energy suppliers will remove a prepayment meter free of charge for a customer who wants to switch to a standard credit meter.”

ENDS

*4.1 million people are on a prepayment meter in the UK: https://www.ofgem.gov.uk/system/files/docs/2019/11/20191030_state_of_energy_market_revised.pdf
 
Notes to editors:
 
The research was conducted by the Centre for Economics and Business Research (CEBR) on behalf of comparethemarket.com.
 
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