Watchdogs alerted to fears over VAT on bills: Addition of tax threatens to compound errors in estimated charges

CONSUMER watchdog bodies for the gas and electricity industries have pledged to keep a close watch on how British Gas and the electricity companies plan the introduction of VAT on their bills to ensure people are not overcharged.

In particular, they will be looking at how customers' bills are calculated on the day VAT is introduced. It is due to be levied on domestic fuel at a rate of 8 per cent in April 1994, rising to 17.5 per cent the year after.

Recent publicity about overcharging on business bills by privatised utilities companies will not inspire confidence among consumers that VAT will be levied correctly. British Telecom had to give refunds to some customers after bills were miscalculated.

One Independent reader has raised concern about the way customers could be overcharged if the fuel companies add VAT to estimated bills.

'Levying the correct amount will depend on having an actual, not an estimated meter reading on the day the charges come into force,' says Anthony Oliver, of Taunton, Somerset. 'To read every domestic meter on the same day would be virtually impossible with the existing force of meter readers. It would be a heavy burden on suppliers if they are required to do it.'

Mr Oliver argues that the fuel suppliers have no commercial interest in ensuring estimates are accurate.

He says he has just settled a dispute with his own electricity supplier over an excess charge for 658 units following an estimated meter reading.

'If those excess units were to be at issue on 1 April 1994, the sum involved would be over pounds 4. On 1 April 1995, it would be pounds 5. If uncorrected, the consumer would lose. The gainer would be Customs & Excise. If there were an underestimate, the loss would fall on Customs.'

Mr Oliver has written to the Office of Electricity Regulation (Offer) and to the Office of Gas Supply (Ofgas).

Sir James McKinnon, director-general of Ofgas, says Mr Oliver has raised an important question. 'We will be speaking to British Gas about this.'

Sir James agrees it is unlikely British Gas will be able to have all meters read on 1 April, so estimates will have to be made. He says the company's system for estimating bills has improved greatly in the last few years, but there will still be room for error. Sir James suggests customers could take readings of their own meters on 1 April and send them to British Gas. Perhaps the company could issue special cards for this.

A spokesman for Offer says: 'We will be discussing the issue with the electricity companies and looking for positive proposals to make sure that customers are treated fairly.' Offer is concerned about the accuracy of estimated readings and ensuring that customers are only charged VAT on that part of a bill clocked up after the tax was applied.

The fuel companies already have some experience in applying VAT, as it has been levied on commercial bills since 1990.

A spokeswoman for London Electricity says VAT was apportioned so that it was only applied to units used after 1 April 1990. For bills that straddled that date, the company looked at the number of units used in the full charging period, worked out an average daily bill and added VAT. This system was agreed with Customs, says the spokeswoman.

Now that VAT is being applied routinely, it may be levied on estimated bills over a full charging period. If the estimate has overstated the bill, it will be corrected when the meter is read later.

The spokeswoman says the company will be discussing the procedure for introducing VAT on domestic bills with Customs. She adds that customers will be free to read their own meters on the day before VAT is introduced to check their bills later.

British Gas used a similar system when introducing VAT for commercial users. A spokesman says: 'If VAT is introduced in the same way as non- domestic gas customers, it will be apportioned on a daily basis. These issues are being discussed with Customs.'

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