Prepayment price premium removed

Households with prepayment meters have not been charged more for their energy than comparable direct debit customers since 1 July 2023, according to Age UK¹. The change ended a price premium that had applied to prepayment tariffs.

Age UK states: "However, from 1 July 2023, households with prepayment meters won't be charged more for their energy."¹

The charity also reports that Ofgem has been reviewing how to make the removal permanent. "From April 2024, Ofgem are reviewing ways to permanently remove the 'premium' on prepayment meter prices," it says¹. The outcome of that review has not been reported.

Separately, Age UK says customers who had a prepayment meter wrongly installed to recover energy debt, or where supplier processes were not followed adequately, between 1 January 2022 and 31 January 2023 are due compensation following a compliance review by Ofgem¹. It adds that some will have a portion of their debt written off¹. The amounts and timings of that compensation have not been reported.

The abrdn Financial Fairness Tracker, published in December 2023, puts a figure on the saving: "This price premium was scrapped in July 2023, saving PPM households around £21 a year on their bills"². The tracker, produced by the Personal Finance Research Centre at the University of Bristol, surveyed 5,594 households in October 2023².

Age UK notes that a price cap applies to most standard variable prepayment tariffs¹, and that prepayment meters can be topped up using a key or card at local shops¹. It also says households should not have to pay to have a prepayment meter installed¹, and that suppliers should not install them in the most vulnerable households¹.

Why it matters for households

The change affects households that pay for gas or electricity through a prepayment meter rather than by direct debit. From 1 July 2023, the unit rates and standing charges on prepayment tariffs are no longer set higher than the equivalent direct debit tariff, so the same amount of energy costs the same on either payment method¹. The tracker estimates the saving at around £21 a year for a prepayment household².

The practical effect is that prepayment customers no longer pay a penalty purely for how they pay. That matters because prepayment meters are more common among households on lower incomes and those managing debt. The tracker found that 4.8 million households, or 17% of all households, were in serious financial difficulties in October 2023, up from 2.8 million, or 10%, in October 2021². Among those in serious difficulty, 65% had taken on new debt in the past six months, compared with 19% of financially secure households².

The compensation route covers a defined group: those whose meters were installed to recover energy debt, or where supplier processes fell short, between 1 January 2022 and 31 January 2023¹. Age UK says some of those customers will also have part of their debt written off¹. It does not set out how much compensation is due or when payments will be made.

For anyone checking a prepayment meter reading, Age UK says to take the five black numbers from left to right and ignore any red numbers¹. It also notes that smart meters are being offered to every household in England, Wales and Scotland, that there is no charge for installation, and that they send readings to the supplier automatically¹.

What happens next

Ofgem's review of ways to remove the prepayment premium permanently began from April 2024¹. No conclusion has been reported. The compensation process for wrongly installed meters, covering installations between 1 January 2022 and 31 January 2023, is also under way, with no payment timetable reported¹.

Households wanting to understand their options can read our guides to cutting household bills and financial inclusion, or find free money guidance from MoneyHelper, Citizens Advice and money coaching services.