There are millions of energy prepayment meters in Britain. They’re supposed to liberate customers from financial worry. They do the exact opposite.
We learn that over three million households with prepayment meters were cut off at least once last year. Meanwhile, the number of people being switched to prepayment because they’ve run up arrears is surging. 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. This morning, a BBC journalist on Today said:
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. Prepayment meters don’t protect customers at all. They protect suppliers and discipline customers. Once it’s become clear to your electricity company that you’re struggling or you’ve missed a payment (or even that you might miss one), it becomes urgent to get you onto a prepayment meter sharpish. 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. Without even knowing how many prepayment meters there are in the UK (this number doesn’t seem to be available) or what the average credit held on an account is (likewise), it’s easy to calculate that, with interest rates for cash held over night currently at well over 3%, 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).
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. Gas and electricity was paid for in advance via coin meters. A whole predatory ecology arose to service the pay-in-advance and pay-on-the-spot economy of working class Britain – tick, tallymen, pawn shops, the whole infrastructure of informal, high-interest lending for the ‘unbanked’. For a hundred years the ‘man from the Pru’ was a feature of working class neighbouorhoods, collecting insurance premiums. 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 prospers from 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 and ‘continuous payment authorities‘, conveniences that are also sold as an improvement to service for customers but were actually designed to give suppliers some certainty about accepting payments from the great unwashed (see also ‘pay-as-you-go’ mobiles). 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 will disappear.
And the meters themselves lift the crude business of taking the money up-front to a new level. They’re exploitation machines, disciplinary surveillance robots installed directly in customers’ homes. Each meter embeds a contractual relationship and a set of terms and coditions 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 prepayment underclass!).
And 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, your meter will be set up to take it all 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 switching suppliers enjoyed by the savvy householder is not available to you. The liberty of the informed consumer in a free market is denied to you. You are stuck (and, incidentally, you are almost certainly on the supplier’s highest available rate with the fewest options).
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 crazy 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, the meter – you won’t be suprised to learn – will always fail in the ‘off’ state, so if your top-up doesn’t work there’s a reasonable chance you’ll be cut off and waiting over night 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.
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 pattern. It’s become unchallenged common sense that life should be harder for the poor. Smart technologies and prepayment meters make it easier than ever to achieve this.