There are millions of energy prepayment meters in Britain. They’re supposed to liberate customers from financial worry. They do the exact opposite.
(I updated this post on 5 January 2024 and again on 8 January when it was announced that some energy suppliers have been given permission to start ‘force-installing’ prepayment meters again. We’re back where we were last Winter, energy prices have just gone up again and more people than ever are being cut off).
There are around four million households with energy prepayment meters in Britain. Over three million of them were cut off at least once in 2022. 18% were cut off for two days or more. Meanwhile, the number of people being forced to switch to prepayment because they’ve run up arrears has surged—660,000 households in 2022. Parts of the media have bought into the energy industry’s story that prepayment meters are in some way benign, that they protect poor customers from getting into trouble. A BBC journalist says:
The introduction of prepayment meters was meant to ensure that vulnerable people could not have their gas or electricty cut off. Paying in advance would mean, it was said, they couldn’t get themselves into financial difficulties.
Today, BBC Radio 4, 12 January 2023
It’s a bizarre assertion, essentially the industry line, that journalists obviously feel obliged to reproduce. Of course, prepayment meters don’t protect customers at all. They protect suppliers and discipline customers.
Questioning an MP on the BBC’s Newsnight, the presenter asks:
What is a better way to make sure that people don’t try to buck the system?”
Newsnight, BBC Two, 2 February 2023
Equally bizarre: poor customers, in the midst of a doubling and tripling of energy costs, are ‘bucking the system’ by not paying bills or paying them late. Prepayment meters are, at the same time, a device to help customers stay out of debt and to prevent them from ripping off their suppliers.
Once it’s become clear to your energy company that you’re struggling or you’ve missed a payment, it becomes urgent to get you onto a prepayment meter sharpish, to stop you from ‘bucking the system’. For a supplier, switching the customer to prepayment ‘de-risks’ the relationship, removing the possibility of default and the need to chase you for payment, appoint debt collectors etc. Moving a customer who’s in financial difficulty to a prepayment meter switches them from potential liability to cast-iron, zero-risk asset.
Free money for shareholders
Also, to state the obvious, a customer with a prepayment meter pays in advance. There are around four million energy prepayment meters in the UK and without even knowing what the average credit held on an account is, it’s easy to calculate that, with interest rates for cash held over night currently (January 2024) at well over 5%, the energy firms are making tens of millions annually, in bank interest alone, from these deposits. Free money! And from the poorest customers with the least choice.
Prepayment is nothing new, of course. Poor people have been required to pay up-front for gas and electricity since the distribution grids were built. Middle class customers with salaries and bank accounts have always paid monthly for goods and services – grocers and tailors and dairies posted a bill and waited politely for a cheque (those ‘no credit’ signs were just for the hoi poloi).
Two tiers
Working class customers – typically hourly-paid or on piece rates – have had, for the whole modern period, to maintain a patchwork of pay-in-advance and pay-as-you go services. Before the NHS, medical treatment was paid for on the spot, insurance and funeral cover was paid weekly on the doorstep. Radios and TVs were rented, ‘Christmas clubs‘ made saving for presents possible in the absence of a bank account. Gas and electricity was paid for in advance via coin meters. The acquiring and hoarding of shilling coins or later of 50p pieces became a source of perpetual anxiety and aggravation in working class homes.
A whole predatory ecology arose to service the pay-in-advance and pay-on-the-spot economy of working class Britain – tick, tallymen, pawnbrokers, money lenders – the infrastructure of informal, high-interest lending for the ‘unbanked’. For a hundred years the ‘man from the Pru‘ was a feature of working class neighbourhoods, collecting life insurance premiums door-to-door. This economy emerged to serve those excluded from the pay-on-account economy. And this system, as it does to the present day, extracted a higher rate of return from the least able to pay. Pay-day lenders, sub-prime credit cards, unsecured loans and ruinously expensive overdrafts – a secondary economy that cannot function without precarity and desparation. Prepayment meters are part of this world.
Soaking the working class
More recently, working people have been permitted access to the pay-on-account ecology—via modern devices like Direct Debit, an innovation that represents an improvement in convenience and security for working people and provides useful consumer protections but was really designed to expand the reach of pay-on-account services into the growing pool of workers with secure jobs and monthly salaries in the 1960s. Direct Debit is a survival of the post-war boom, of full employment and collective bargaining. In the era of the precariat its protections for consumers look anachronistic, almost quaint—and are increasingly inaccessible for the growing number of unbanked, working poor and near-destitute households.
Poorer customers are characterised as ‘higher-risk’ but the prepayment and pay-as-you go devices they’re required to use turn them into zero-risk sources of annuity income. Rates for prepayment are also typically higher and less flexible than for pay-on-account or Direct Debit bills. Suppliers say this has to be so because operating the prepayment infrastructure adds cost but as prepayment and smart meters converge this difference has essentially disappeared.
And the meters themselves lift the crude business of taking the money up-front to a new level. They’re exploitation machines, surveillance robots installed directly in customers’ homes. Each meter embeds a contractual relationship and a set of terms and conditions and, once all meters are ‘smart’, switching a customer from the pay-on-account elite to the prepayment underclass is trivially easy (and could even be automatic – missed a payment? Welcome to the underclass!).
It’s a one-way street. If you’re struggling you’ll find it almost impossible to get back to pay-on-account. Once you’re in prepayment mode, the machine acquires the discretion to enforce the contract by cutting supply. Spent your money on food? Couldn’t get down the shop? You’re out of luck. The meter has decided. And if you built up arrears while paying monthly (about 10% of prepayment customers are paying down debt, according to the Scottish Power executive quoted in this article), your meter will be set up to take it back from you, week by week, and while you’re repaying what you owe you won’t be able to switch to another supplier—the annual ritual of shopping around enjoyed by the savvy middle-class householder – the liberty of the informed consumer in a free market – is not available to you. You’re stuck. Incidentally, you’re almost certainly on the supplier’s highest available rate with the fewest options (in 2023 the UK Government announced that higher rates for prepayment customers would be abolished and that the government would fund the change until April 2024. I haven’t been able to find out if this has actually happened).
There’s an additional risk that if you’ve fallen substantially behind with your payments your utility account will be labelled as ‘delinquent’ and your credit rating will be affected for as long as it takes you to get back on terms, even though you’re now paying for your energy in advance, so you can forget about borrowing money to reduce the cost of your debts or remortgaging.
Living on a prepayment cliff edge
The experience of living with a prepayment meter is necessarily stressful. Even if you’ve got a steady income and can afford the elevated prices, you still have to worry about keeping the meter topped up and about the cliff-edge of being cut off if you forget or run short. For people who are struggling (many millions of UK households right now, of course) the additional stress of controlling expenditure and topping up before the supply stops is punishing and time-consuming – and makes everything else harder. Worse yet, when a prepayment meter goes wrong or a key fails or the battery dies, the meter – you won’t be suprised to learn – will always fail in the ‘off’ or ‘closed’ state, so if your top-up doesn’t work there’s a reasonable chance you’ll be cut off and waiting over night or over the whole weekend in the cold for an engineer or a call-back. Failing in the ‘on’ state would obviously risk supplying a low-value customer with some free energy and must thus be avoided at all cost.
Some customers give up and ‘self-disconnect’. Since about half of prepayment households have a smart meter it’s easy for suppliers to tell when customers have self-disconnected. Ofgem’s data says it was 269,351 households for electricity and 534,462 for gas in the first three months of 2023 (these numbers have gone up since this snapshot and they vary seasonally) At any one time hundreds of thousands of households in Britain are cold and dark.
Adding the stress of prepayment to the anxiety of poverty and precarity is, of course, a feature not a bug. Families with no slack, no buffer against destitution, have to find the bus fare to get to a distant news agent before it closes or someone to look after the kids while they scrabble for funds. And if you can find a fiver to top up you’ll need to do the same again tomorrow – and lie awake worrying about it tonight. Prepayment was designed this way. It’s deliberate, debilitating, immiserating. The routine humiliation of the poor is a centuries-old practice. It’s unchallenged common sense that life should be harder for the poor. Smart technologies and prepayment meters make it easier than ever to achieve this.
- This Citizen’s Advice report on prepayment meters is a pretty bleak read. Citizen’s Advice also has advice on stopping your supplier from switching you to prepayment. Ofgem has a list of the suppliers now allowed to switch you to prepayment without your permission.
- British Gas, one of the biggest suppliers, was once the publicly-owned utility (sold off in 1986). In February 2023 it was revealed that the company (and others) had been instructing bailiffs to break into people’s homes to install prepayment meters – it happened 94,000 times in 2022. They were told to stop and the regulator published new rules. On 8 January 2024 it was announced that some suppliers have been allowed to smash your front door in and switch you to prepayment again.
- I haven’t been able to find any detailed comparisons but it certainly looks like Britain is an outlier. According to this Independent article, Romania is the only European country with a comparable number of prepayment meters and “In most countries in Europe prepayment meters are not used at all.” In some regions they are actually illegal. This article in a smart meter trade publication says that most prepayment meters have been installed in the developing world and in middle-income countries in Africa and Asia. Ireland, Bulgaria and Romania are also mentioned.
- Did you know that taxing your car costs more if you pay monthly instead of annually? There’s a 5% surcharge. The same if you need to buy a prepayment certificate for your prescriptions (13%). Another penalty for the less well off, this time from the UK government (in Scotland prescriptions are free).
- Danny Dorling, geographer, regularly points out that much of this story—expanding poverty, the increasingly punitive financial and welfare context for the poor, disconnections and evictions—only applies in England and Wales and that simple measures taken by the Scottish government have essentially stopped it happening there.
- Today smartphones are often paid for via expensive two- or three-year credit agreements, at interest rates that can add a third or more to the cost of the handset. Somehow a huge proportion of us have been persuaded to enter into a Radio Rentals relationship with our mobile phone operators – spending hundreds of pounds more than retail to participate in the culture.
- The Rowntree Foundation’s most recent report on poverty in Britain has a lot of the current figures. Resolution Foundation’s Living Standards Outlook 2023 (PDF) has detailed forecasts for 2024/25.