Electric injustice: how pay-as-you-go meters rip off the poorest

What do you think when you hear “pay-as-you-go”? Nokia and the Noughties? The salad days of mobile phones? Perhaps. Egregious social injustice? Perhaps not. Yet PAYG has a sinister side which is ripping off the poorest and doing so beneath the purview of polite society.

It was possibly a sign of my own greenness that I hadn’t seen a prepayment meter before I moved into my flat. The concept is simple enough. Where most people set up a direct debit or pay off their electricity bill quarterly, my prepayment meter means that I pay my energy provider in advance. As well as demanding an upfront standing charge, the provider sends me a widget that I can top up at a Post Office or newsagent. The widget gets inserted into the meter outside my front door and job done – I pay as I go. What’s not to like?

Quite a lot, actually. The inconvenience I can deal with (indeed, there’s now an app for that). Less tolerable is the fact that higher standing charges and higher rates mean that prepayment meters as a matter of course are significantly more expensive than standard credit meters. The inestimable Martin Lewis of MoneySavingExpert.com found in March this year that the cheapest available deal for a prepayment meter based on medium usage was £984 per year, but only £874 for a standard credit meter.

The real outrage, however, is that it’s overwhelmingly the poorest and most vulnerable who are being fobbed off by PAYG electricity. In 2016, the Competition and Markets Authority (CMA) identified “low levels of income; low levels of education; living in social rented housing; and having a disability” as being among the demographic characteristics seen in higher proportions among those with prepayment meters. The same report also found that these customers were on average less likely to switch energy suppliers to a more competitive deal, largely because they “face higher barriers to accessing and assessing information and additional actual and perceived barriers to switching”. Similarly, in 2018 Citizens Advice revealed that 41 per cent of those using prepayment meters reported issues with their physical health and 15 per cent had issues with their mental health.

The attraction of PAYG for those on the lowest and least stable incomes is obvious: paying upfront makes budgeting easier and avoids the nasty surprise of an unexpectedly high bill. Yet just as evident is that trying to find a manageable way to pay for a utility should not leave you penalised by prices often hundreds of pounds higher than they need to be. The injustice of this is glaring.

In response to the CMA report, Ofgem introduced a price cap for prepayment meters for the first time in 2017, and have updated it since. However, at best the cap merely limits the scope for the most egregious price hikes, while still allowing the fundamental inequality to run on unchecked: PAYG prices remain considerably higher.

We are in a situation where the poorest are trapped in a system that is cashing in on their vulnerabilities and relying on their relative anonymity in the media and among those in positions of power. If the Government wants a tangible way to “level up”, it could do worse than starting here.

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