Labour vows to end ‘outrageous’ energy premiums faced by prepayment customers

Labour says policy is first in package to be unveiled in coming days

Andrew Woodcock,Ashley Cowburn
Thursday 11 August 2022 22:29 BST
<p>Rachel Reeves describes higher prices as ‘unjustifiable’</p>

Rachel Reeves describes higher prices as ‘unjustifiable’

Labour has today launched the first part of its plan to beat the cost of living crisis, with a proposal to scrap “outrageous” rules which see customers using prepayment meters pay a higher price for energy.

Amid increasingly bleak warnings that the domestic energy price cap could top £5,000 by April, the party said its move would save up to 4 million of the poorest and most vulnerable Britons around £100 during the months of January, February and March when heating need is high.

The plan was unveiled after a crunch government summit with energy companies produced no new agreement on how to help households facing unaffordable rises in their gas and electricity bills this autumn.

Sir Keir Starmer has faced discontent from within his party’s own ranks over his failure so far to put forward radical ideas to deal with the crisis.

Sacked frontbencher Sam Tarry last week told The Independent Sir Keir risked being “blown over” by the scale of the cost of living crisis. And former Labour prime minister Gordon Brown appeared to take a swipe at the vacationing party leader by saying that “crises don’t take holidays”.

With Boris Johnson swearing off any major tax or spend announcements before the appointment of a successor on 5 September, it has been left to the likes of Mr Brown, consumer champion Martin Lewis and Lib Dem leader Ed Davey to lead the way with demands for action on energy bills.

Davey this week called for the scrapping of October’s price cap hike, which is expected to increase typical bills from £1,971 to more than £3,500. And Brown demanded temporary nationalisation for energy companies unable to offer lower bills.

Now Sir Keir is set to use a series of announcements over the coming days to set out a wide-ranging plan drawn up with shadow chancellor Rachel Reeves and climate change spokesman Ed Miliband to help keep the heating and lights on this winter.

Ms Reeves today denounced the premium charged to prepayment meter users as “unjustifiable and morally wrong”.

She asked: “Why should those with the least have to pay more to heat their homes and put the lights on?”

Energy regulator Ofgem earlier this year increased the annual price cap for an average household on default tariffs paying by direct debit from £1,277 to £1,971 – a £693 increase.

But for prepayment customers, who are often from lower-income households, there was a £708 increase from £1,309 to £2,017.

With bills now expected to increase to more than £4,200 in January, Labour said the disparity will widen, leaving prepayment customers paying an additional £100 between January and March alone.

And the sums involved could be even larger, with energy consultancy Auxilione forecasting that the cap could hit £4,467 in January and an eye-watering £5,038 in April – more than £200 higher than previous predictions.

Labour said it would reimburse energy suppliers the estimated £113m cost of equalising the caps between October and March with cash raised from a strengthened windfall tax on North Sea oil and gas companies.

Ms Reeves said: “It’s outrageous that people on prepayment meters have to pay more for their energy. Why should those with the least have to pay more to heat their homes and put the lights on?

“As energy prices spiral, this unfair prepayment premium must end. Labour would make sure that no one pays over the odds for the same gas and electricity than everyone else gets, as well as taking broader action to help people manage their bills over the winter”.

The Labour proposal was welcomed by anti-poverty campaigners, but a leading think tank said it would go only a small way towards softening the blow of soaring energy bills on the poorest households.

Katie Schmuecker, principal policy adviser with the Joseph Rowntree Foundation, told The Independent that equalising the price caps would “help correct the long-standing injustice of people on the lowest incomes paying more for their energy”.

But she added: “Saving around £100 when people are facing living costs rising £2,800 over the course of a year shows how much further any cost of living support for families on low incomes needs to go.

“To address the scale of the issue, payments targeted at low-income families must at least double, and the deduction of debt repayments from benefits at unaffordable rates should be stopped.”

Simon Francis, coordinator of the End Fuel Poverty Coalition, commented: "Nowhere, apart from in Britain’s broken energy system, would people be forced into more debt and onto a more expensive tariff when they are already struggling with bills. But that’s what happens with prepayment meters which are used as a weapon by the energy industry to punish struggling households.

"So while any moves by politicians to make life easier for people on prepayment meters are welcome, much more needs to be done for them and all consumers and we look forward to seeing Labour’s full proposals to end the fuel poverty crisis."

Jan Shortt, general secretary of the National Pensioners Convention (NPC), said customers were often forced onto prepayment meters with little choice after experiencing difficulty paying their bills.

“It is well known and researched that prepayment meters discriminate against the poorest in particular – something that has been an issue for the NPC since before the onset of the energy crisis,” she told The Independent.

“We all buy the same energy from our providers. Making life even more expensive for those struggling to cope on low pay or an inadequate state pension is absolutely unacceptable.”

Following Thursday’s meeting with energy suppliers, Mr Johnson said he was “urging” companies to work towards easing cost of living pressures and investing more in British energy security.

Chancellor Nadhim Zahawi said the companies had “in the spirit of national unity… agreed to work with us to do more to help the people who most need it”.

In a warning to companies and amid reports of a more stringent windfall tax, he also stressed the government will continue to evaluate “appropriate and proportionate” steps in the face of extraordinary profits.

But there was no announcement of specific action, and no firm promises from the two candidates to replace Mr Johnson on what they would do.

Former chancellor Rishi Sunak has said he would put “a few billion” into enhancing the support package he drew up earlier this year, which provides direct payments of up to £1,200 to the worst-hit households. But his rival Liz Truss has said only that, as PM, she would “do all that I can to help struggling households”.

Mr Miliband said: “Britain faces a national emergency. Families are worried about how they will pay their bills.

“But instead of showing leadership, the Conservatives are missing in action. The prime minister and chancellor have gone awol, whilst the candidates for the leadership have no substantive ideas about how to help working people meet the challenges they face.”

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