Lilley urged to keep gas payment scheme

The Gas Consumers Council and independent gas suppliers have appealed to the Government not to withdraw a long-running scheme which helps the poorest families on benefits pay their heating bills, claiming the move could seriously disrupt domestic competition.

Sue Slipman, director of the Gas Consumers Council (GCC), has written to Peter Lilley, Secretary of State for Social Security, urging him to clarify the future of the direct payments scheme and accusing him of undermining the work of the Department of Trade and Industry, which has promoted competition for residential consumers.

Some 400,000 households are currently members of the scheme, which is offered to families on benefit at the discretion of the Department of Social Security. It aims to help them avoid getting into debt by setting aside income support money and using it to pay fuel or water bills directly to the utility companies concerned. Of these around 185,000 customers use the scheme to pay gas bills.

However, a document leaked last week to The Independent suggested Mr Lilley had agreed to abolish the scheme. It said the Government should "not be in the business of social banking/ debt management and should seek to develop a disengagement strategy, leading ultimately to the withdrawal of the direct payments scheme".

According to the GCC this could encourage some British Gas rivals to try to "cherry-pick" more affluent customers in breach of licence conditions laid down by the industry watchdog, Ofgas. These stipulate that all suppliers must agree to provide gas to any potential customer, regardless of income or other circumstances.

The GCC has already rebuked one firm, Eastern Gas, for its marketing tactics and is closely scrutinising others.

Ms Slipman said some suppliers would be even more likely to adopt questionable tactics to get round the rules. One problem is the difficulty of proving that companies are deliberately seeking to discriminate against poorer households.

She said: "The only way we are going to solve this is to make poorer customers more attractive. Otherwise we are going to get companies refusing to supply gas or using selective marketing to avoid taking on these customers. If they do that we'll be down on them like a ton of bricks."

In addition, many families were more likely to fall into debt with their gas supplier and would almost certainly be forced to install pre-payment meters, increasing their bills by some 25 per cent. Ofgas allows suppliers to pass on the extra cost of administering pre-payment tariffs.

Pre-payment meter customers temporarily disconnect themselves when they can no longer afford to pay their bills, but do not appear on the official lists of permanent disconnections. Gas suppliers also like the direct payment scheme because they are guaranteed to receive payment for bills, so encouraging them not to install pre-payment meters.

Neil Lambert, joint general manager of Calortex, an independent domestic gas company, explained: "One problem is that the Government hasn't really come up with a proper alternative scheme. But if people were forced on to pre-payment meters the costs would go up."