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177 MPs back Robert Halfon’s campaign on energy bills

Calling your energy company

Robert Halfon MP tells us how he’s pushing energy companies to ensure non-Direct Debit customers pay a fair price for paying their bill. With support from 177 MPs across the parties, he’s demanding action.

I was outraged to hear from a constituent that his elderly mother had received a letter from the Co-op Energy Company stating that she was going to be charged £63 extra unless she switched to pay her gas and electric bills by direct debit.

It is understandable that there is an extra administrative cost to not paying bills by direct debit, but £63 is excessive. Shockingly, upon investigation, I found that the majority of energy companies across the UK impose these extra charges, or instead, discount bills substantially for those paying by direct debit. This is particularly the case for the Big Six.

Penalised for paying by cheque or cash

Out of 32 energy companies surveyed, 17 energy companies charged more to customers who were not paying by Direct Debit. And figures from the Department of Energy and Climate Change show that the average annual surcharges were £114 in total – £41 for electricity and £73 for gas.

This is unfair, and hurts the low paid and vulnerable the most.

Some smaller companies charge their customers exactly the same regardless of how their customers pay their bills. These include Ecotricity, Good Energy, Green Energy UK, and LoCO2, and many water companies charge nothing or less than £5 for using other payment methods.

All companies should attempt to follow this example, as it shows that it is even more unreasonable for some of these companies to charge such exorbitant amounts.

Routinely ripped off by energy companies

The poorest and most vulnerable are routinely ripped off by energy companies when it comes to paying for the most essential of items, gas and electric. In the UK, 45% of people do not pay their electricity bills by Direct Debit. Those on lower incomes often prefer to manage their finances by paying for things with cash, and some people do not even have access to bank accounts.

Energy companies should make it clear to customers why they are being charged more for using a particular payment method and the price must be no more than what it costs the company to process the payment. I’m recommending £24 per year (£2 per month) as a reasonable limit to cover costs.

Many companies are including the cost of late payment and sending reminders in their justification for charging more for traditional payment methods. This is not fair on non-direct debit customers who always pay on time. These extra costs created by some customers should be paid for by late fees. In this way, the culprits are directly accountable and innocent people do not have to subsidise them.

There should be a government or regulator inquiry to look at why some companies are able to allow customers to pay by whichever method they prefer without incurring an extra cost. This would ensure that businesses are not hoodwinking vulnerable bill-payers, who might be unaware or unfamiliar with direct debit, into paying more than they have to.

I’d like to hear your views on these discounts, do you think the charges are fair? Have you been stung by these charges before?

Which? Conversation provides guest spots to external contributors. This is from Robert Halfon MP for Harlow, Essex. All opinions expressed here are Robert’s own, not necessarily those of Which?.


I very much agree that these problems should be resolved to help consumers.

Another issue that I would like to raise is the way that energy supply companies frequently keep consumers in credit, often hundreds of pounds, when they do pay by direct debit. I want to pay for the energy that I use – no more and no less.

Maybe Energy companies should be made to pay interest on any excess money of at least RPI %age rate. I’m sure they wouldn’t hold onto it for long then

kurgamoppa says:
13 May 2015

I use the excess as a savings, I took 160 out earlier in year towards a new washer dryer,

The energy companies should be asked what charges they make for payment by methods other than direct debit, and then to explain how those charges arise. Much of the energy debate is driven by emotion – we need facts and figures to debate it rationally.
However it should be Ofgem’s job to get hold of this information and to ensure that the energy companies charge fairly. I cannot see this in the Retail Market Review, but may have missed it. If they have not addressed bill payment methods in detail then MPs should be asking them to deal with it.
Incidentally, I have found that the licence conditions do allow a supplier to levy a charge for late payers; so others who pay on time need not subsidise them.

Our energy company does not understand the concept of “being fair”. Having had the privilege of direct access to our bank account via direct debit it is now holding on to a substantial sum of money in our old account at our previous address which we vacated 5 months ago. ( We are continuing with the company at our new address purely to avoid early exit charges.). The company is now ignoring repeated emails .
.. This company is greedy, is abusing its power, and is a disgrace to civilised society. Energy customers should never have been allowed to be trapped in this position. The government needs to alter the regulations as the so-called “market” is unfair to consumers. The matter has been referred to of the Energy Ombudsman.

kurgamoppa says:
13 May 2015

energy ombudsman should help, I’m on eon and can get any overpay put back in my account in around 4 working days had 160 towards new washer in January,with no probs at all, very easy company to talk to ,and helpful. good luck.

How about you force energy companies to refund these excessive overpayments for say the last 6 years.

And on the figures you’ve quoted above looks like the Co-Op have been profiteering to the tune of around £58 a year. I wonder what the founding members of the Co-Op would think of how the current management is using their name.

And FYI like all other compensation schemes, I won’t benefit from this suggestion either.

A converse argument in favour of their payment charges…

The companies save costs when users pay regularly by DD and administer their accounts on line. So why shouldn’t those users be rewarded with lower costs?

If you pay by cheque and it costs more to administer your account, you should pay more. It really is that simple. The energy companies are no different than insurance companies who vary your insurance premium based on your risk, age and track record.

However, the actual cost of the energy should be the same across the board, but the increased cost of delivering the energy to your location and the cost variation in managing your account should reflect the true cost. Hence some users pay more than others.

terfar, agreed in principle. As I indicated above my question is simply what is a reasonable cost difference between direct debit and cheque/cash payments; someone (Ofgem) should look at this – it is not unreasonable for it to be different for different suppliers. The benefit is often given as a discount for those who pay by DD. Apart from the easier administration of DD, it also gives the supplier better security that they will be paid, and paid on time. That has value to them.

I agree with you. The exact cost is a little difficult to know (and I expect that the many companies don’t know either). It’s not just the simple 50p (or whatever) bank transaction charge, but the invisible costs such as sending out bills and processing the payment. But I doubt it is more than £2 or so per cheque.

I’m sure these companies don’t know the costs for anything and most of their fees are estimates. It’s like Coop Energy who make an identical standing charge for delivery of electricity and gas. The infrastructure for electricity and gas are totally different, so how they reach an identical charge is beyond my ken. I think it is committee guesswork, which I suspect is what they do for differences in billing costs.

On another Conversation we have had examples of debit card surcharges that are clearly well in excess of the small cost of processing transactions. I am not opposed in principle to SMALL differences in charges according to payment method, providing that they are an honest reflection of costs. The fairest way would be to have a national system that applies to all companies, to remove the possibility of exploiting customers.

As Which? has said before, making comparisons between energy supply companies is too complex.

It costs a lot more than you would expect to process cheques. In the past I have used a figure of £10 when calculating costs at financial services companies. You need to include the cost of reconciliations and bounced cheques. DD’s are handled entirely automatically so their cost is in the order of about 10p. So 4 cheques p.a. cost about £40 to process. Add in a profit margin (power companies don’t work for free) and £50 p.a. is entirely resonable.

If insufficient funds are available, a direct debit will fail in the same way as a cheque payment. I am not doubting that direct debit costs less than cheque transactions, but feel that a fair comparison should be made.

One thing that is clear is that those who default on payments increase the costs for everyone.

If these figures are correct and are widely applicable then we can begin to understand how the extra costs compare with what the energy companies charge (or discount). Only with facts can we assess these issues, and then decide if there needs to be a better way of dealing with them.

It would be good to see some more information about these costs. Energy companies do have the costs of those who pay late or default on payment. It is not just a case of comparing costs on the basis that everyone pays promptly.

In the old days when bills were sent and paid by post there were many who would invariably wait until the red final demand was received, even they had no shortage of money.

I hate direct debits. I think this is why I love Ebico/SSE even more. Not only do we have a £0 standing charge and amazing Twitter support. But we also pay the same price however you pay including debit card.

As I take my meter readings every week for “Meter Reading Monday”, I then make a card payment on the SSE’s website for £1.06 – £1.79 depending on how much I have used that week. I like to-do this so when my 3 monthly bill comes it’s already paid off.

Lee, as you seem to be a very low energy user then Ebico might be your cheapest. You pay for lack of standing charge with high unit rates. So it is very expensive for many others. SSE (SE in my area) is not the cheapest supplier. It pays to use Which? Switch for your specific annual energy use to compare suppliers.

I agree total Malcolm I was talking to a friend who works for one of the big 6 last week and I admitted if Ebico/SSE went under I would need to start paying all these other fees most of you guys already pay.

Last year my total energy bill was £176. This year I am trying to get it to £52. So yep, I am a very very low energy user.

kmach says:
4 February 2014

Just another British rip off !

Daniel says:
4 February 2014

I switched from SSE to CoOp Energy purely because in 2012 SSE pretty much doubled (60 to 100) it’s standing charge for non DD people like myself.

1 year on CoOp have now increased standing charge from 70 to 100 for nonDD, usual guff about regular income and admin costs, didn’t switch user since they only increased energy prices 2.5% whilst everyone else way higher.

I’m nonDD since had poor experience when British Gas doubled the DD and didn’t tell us in advance, CoOp promise to always write first to ensure DD manageable, still chose to stay quarterly whole bill so in in control if finances not a profit making company.

Like Wavechange my DD account is way in credit due to the Energy Co’s assessment of my usage taken over last year which was an exceptionally long and cold winter. If this is normal practice then the 55% who pay by DD are lining the Energy Co’s coffers and the interest accrued could help toward the poorer consumers who can’t afford (or choose not to pay by DD.) Some DD consumers may not welcome this but if it would reduce costs for the low paid and vulnerable I would welcome this. The present situation is a win win for the Energy Co’s.

Beryl, you can ask your energy company to change your direct debit. As far as using the interest made on individuals excess accounts – the excess money should be refunded to the individuals. It would not be right to use money from a random group who have overpaid to subsidise others. Subsidy is the job of the state, out of taxes, and a levy paid to the energy companies for this purpose.

I have been home a lot in the past quarter and used more energy than usual, resulting in a debit of about £64 on my account. This resulted in prompt notification that my direct debit payment will rise by about 15%. No doubt I will be well in credit within the year. As Beryl says, it’s a win win situation for the energy companies.

I just want to pay for what energy I use – not overestimates and underestimates. A direct debit should make this easy.

Before switching to Scottish Power I frequently called e.on and they always took action when I complained about being substantially in credit. They would only do this automatically once a year. On other Conversations, it is clear that others have had difficulty in persuading e.on and other companies to take action regarding large credit balances.

I am able to stand up for my rights but I want energy companies to be fair to everyone, and without the constant struggle.

I’m with npower who offer three payment methods: cheque, card or cash on receipt of quarterly bill, monthly fixed direct debit (designed to even out payments through the year), and quarterly variable direct debit where your bank account is debited for the amount of energy you have used in the quarter. Sounds like this is what would suit you. The same direct debit discounts apply to both the latter methods.

“The excess money should be refunded go individuals “.

Yes I agree sorry if I failed to make myself clear but I was referring to the interest accrued and not the overestimated amount

Beryl, we are at slight cross purposes! I meant that excess money should not accrue in the first place, so interest would not be available to distribute.

Of course, the only final solution is for the Energy companies to fit Smart Meters in every home. Then they would be able to simply debit the exact sum every month.

However, there are downsides to even that solution. Providing the annual energy usage is correctly estimated, paying the same DD in 12 equal monthly payments is often more convenient for the householder because it spreads the cost across the year and simplifies budgeting. With a Smart meter, an unexpectedly cold December (and we had one recently) could result in the householder having a shocking bill immediately following an expensive Christmas!

So paying by DD benefits both the householder and the energy companies because both can predict their cash flow regardless of the vagaries in the weather. Yes, the householder will have big surplus balance at the start of Winter, but in an average year, this should balance out by the end of March. It is far from an exact science though because none of us can predict the weather more than saying it’s colder in winter than in summer! So far, despite the horrible weather, this winter has been mild and energy consumption has been ‘unseasonably’ low.

Malcolm – Thanks very much for the information about npower’s direct debit system. I’m on a fixed price contract at the moment but I will certainly look into this. I wonder why all energy companies don’t offer the same arrangement. Some people may find it helpful for budgeting purposes to have a fixed monthly payment but there are many like me who just want to pay for what energy they have used.

terfar, I agree. Even now, though, they could take it monthly for those prepared to submit meter readings. I am not sure about smart meters. Would they really be of much use showing people how much energy they are currently using? And there is a large up-front cost that the energy companies must bear – and that means we’ll pay. For the energy suppliers, there are substantial differences in the costs they pay for their energy at different times of the day. We currently only may benefit from this if on an economy tariff. However a smart meter could submit our energy usage daily, and at different times, so we could pay a number of different unit charges depending upon time and usage. For those savvy enough, and diligent enough, to use energy outside the peak times, savings could be made. However I doubt this would have much effect on heating – that is determined by your thermostat and timer – no point in having it on at cheap times if you don’t need it. Electricity for cooking – change your meal times? So I think they could be a waste of time. However, I’m sure someone will know better!

From reading other comments is sound like this system might work….

Last working day of the month give your energy company your meter reading (online). Then around the 16th of the following month the energy company would take the Direct Debit for the amount you have used. This would mean you only pay for what you use and your energy accounts wont get into a stupid amount of credit.

But let’s be honest. That is far too simple for energy companies. They like to have extra money on the account in-case you stop paying. Plus some people would forget to input meter readings too.

We have to be prepared to do something for ourselves! Taking your own meter readings and submitting them online is not difficult for those with internet access; it saves estimated bills and nasty surprises. See above comment re paying for what you use by variable direct debit – your proposal is in use quarterly but not monthly. Maybe it could be.

I think if the system was in-place to-do it monthly it would help people cut down too. As if they used say £45’s worth and it was too much, the following month they would try and use less and maybe try and have a bill of £35 or £40 and saving money too.

I don’t mean to bang on about myself, but this is why I take my readings weekly. So if i have had a bad week the following week I try harder.

PS: I know this is off topic a bit, sorry Patrick, feel free to send me abuse :p

Mike Wood says:
4 February 2014

I am with SSE I recieved notification that the promp payment reduction had been removed. this means that in addition to the price rise all those who paid promptly are now paying an additiional price. I contacted SSE twice and was told that the change was due to a directive from OFGEM, i had read an article that refuted their claim. I was put through to a manager, Jakki Mathews, who said that SSE would only make the change of OFGEM had authorised it, after some discussion she agreed to email me the OFGEM instruction. some days later I received an email stating that this was not an OFGEM directive but a decision made by SSE to simplify billing. If one person’s comments can be considered as representing ten thousand people SSE are adding a considerable ammout to their income!

Ofgem have today published the following. Para 2 says they clamp down on unjustified costs; they therefore must know what the costs should be, and those currently applied presumably are all condoned (except possibly Scottish Power). Perhaps Robert Halfon could ask Ofgem to consider his comments in the introduction and explain where they seem to differ.

“Prices of different payment methods for energy
Publication date
Tuesday, February 4, 2014 – 17:15

Suppliers face different costs for the energy payment methods they provide. We have a strong track record in clamping down on unjustified price differences between these payment methods. Our energy supply probe resulted in more than £300 million in unjustified price differences being removed, including those related to customers using pre-pay meters.

We introduced a rule which stops suppliers charging more for one payment method compared with another, unless it can be justified by cost. If we find evidence that suppliers are not complying with this rule we take action. We are investigating Scottish Power’s compliance with this licence condition. We will also be collecting further information on suppliers’ approaches to setting price differences between payment methods as part of the first Competition Assessment that we are carrying out with the OFT and the Competition and Markets Authority (CMA).

As part of our reforms for a simpler, clearer, fairer market suppliers will have to tell all customers what their cheapest tariff is on all bills and other communications from 31 March, including if they change payment method.

Suppliers should therefore be open with consumers about why these price differences exist, and explain where consumers could make savings by switching payment method. Given public concern over these differences we urge
suppliers to also look at how they can provide more reassurance to consumers that they are being set fairly.

Consumers are already seeing simpler tariff choices as a result of our reforms and switching rates at the end of 2013 were the highest ever, which has already made it easier to find the best deals available across the market.”

Maybe Ofgem are taking a more proactive stance? This was published by them today – not concerned with payment costs, but presumably energy trading, which is topical if a little off this convo.

“Chief Executive’s response to The Times article published on 3 February
Publication date
Monday, February 3, 2014 – 17:15

Dear Sir,

Following the article ‘Energy chiefs lash out as Ofgem looks into trades’ (3rd February) I would like to make clear that Ofgem and the Office of Fair Trading (OFT) make no apologies for asking energy companies to provide the right level of information to assist with the first of the annual assessments of competition in the energy market. At a time when suppliers need to restore trust in the energy market it is important that these companies comply with these requests rather than sniping at the regulators for doing their job. Ofgem and the OFT take a proportionate approach to gathering information and we have not asked for information on every single trade. However, no one should be in any doubt that we will not hesitate to acquire the information we need for our review.

This is a wide ranging review looking at how well competition in the markets for gas and electricity is serving the interests of households and small firms, and we are carrying it out with the OFT and the Competition and Markets Authority (CMA). Energy companies were required to provide us with the information we requested using powers in the Gas and Electricity Acts, and have now done so.

Could Robert Halfon provide a link to the data he has collated on all the energy companies and the costs of the various ways each charges, or discounts, for different payment methods. It would be useful to see how they vary. It would also be interesting to hear how they have justified the charges when he asked them.

Robert Halfon has helpfully provided a link to the information behind his introduction. http://www.scribd.com/doc/198454928/The-Great-Energy-Rip-Off?secret_password=26fobxl8umjpu54njfg9
If this does not work, it can be accessed through his blog site http://www.roberthalfonblog.com/2014/02/04/my-house-of-commons-debate-today/.
The average discount is around £70-£90 a year for dual fuels. An exception is £390 for Spark Energy! Some suppliers do not make a distinction – the extra cost and risk of payment by cheque or cash presumable being spread across all users. Ofgem claim to monitor and expect charges to reflect actual cost. It would be useful for them to tell us how they assess whether costs are reasonable or not and their criteria for taking action.

Robert Halfon’s site also links to Hansard reporting the full debate on this yesterday. My view is that energy companies charges should be seen to reflect actual costs. It is cheaper and safer for them to be paid by direct debit – those 50% or so who choose this method should benefit from this. Prepayment meters seem very contentious – it seems to me that the cost of providing and maintaining them (should not be high) should be paid for by the user, but tariffs should be the lowest available, since it is a secure and safe payment method, and they should benefit from switching providers. For people who choose to pay by cash or cheque they should recognise that extra costs are involved, but these should be assessed for truth. How to deal with those who do not pay, or do not pay on time – other users should not subsidise them, so extra costs should be recovered from the late payers; bad debts should be absorbed across all users.
I do not believe that energy suppliers should be regarded as providing a financial social service – they are commercial profit-making companies. It is the government who should provide any subsidies that are necessary to those individuals who deserve them.

Pootle says:
7 February 2014

Malcolm, people using direct debit tend to be the more privileged in society who receive a high regular income, have access to a decent bank account, the internet etc. You seem to suggest that more vulnerable consumers should indeed pay higher bills as a result of their vulnerability (unemployed, elderly, single parents, poor health… the list goes on). We should be aiming for a more egalitarian society, not one that creates greater polarisation between the haves and have-nots.

Pootle, That is not what I am saying at all. I am suggesting that energy companies should charge on the basis of its cost. If we feel as a society that some are genuinely disadvanbtaged by this then society should provide assistance – that is what welfare paid for by taxes is for. 50% of people, approximately, do not pay by direct debit. These are not all vulnerable, not all without bank accounts; many will have chosen not to do so, or not got round to it. They have a choice.

Customers who can pay in advance, or immediately on demand, or by automatic process, or by variable debit from their bank, or by any combination thereof, enable companies to lower their cost base overall which benefits everybody. Entering into these arrangements is not without its costs and drawbacks so a reciprocal advantage is appropriate. It’s splitting hairs I know, but I would not say that “more vulnerable consumers pay higher bills” for their energy or telephone service but I do agree that they are charged for using a method of settling their account that is more expensive and less convenient for the supplier. I suggest that equality of treatment is only applicable when equality of practice prevails. As Malcolm has rightly said, it is the duty of government to look after the vulnerable and either supplement their means or relieve their outgoings as appropriate. Just because it doesn’t do this to everyone’s satisfaction doesn’t mean we should then distort the utility markets; there’s enough social obligation loaded onto the energy and telecom markets already adding to the cost of a necessity for the poorest in society [and to add insult to injury, where these impositions are incorporated in unit prices and standing charges, VAT is payable on top!].

I don’t pay by direct debit. But that’s NOT because I’m poor or vulnerable etc. I just like to make card payments that’s all.

Malcolm – regarding your last paragraph – the issue here is when those profits become excessive and disproportionate to the detriment and exploitation of the under-privileged. If you are depending on a governmental type “nanny state” to step in and bale out these unjustifiable profits then ultimately it is the taxpayer who ends up footing the bill anyway. Realistically truth is a word hardly recognised by large conglomerates in today’s discriminatory economic marketplace.

Beryl, the key is to have accurate information. I have been pressing for this – only with facts can we have a proper debate. If the energy companies make a genuine profit – over time – of around 5% that to me is quite acceptable. Shareholders – including many people on pensions – put their money into enterprises that make them an acceptable return; poor performers will simply lose investment. I am not expecting the government to bale out energy companies; I expect government to help those individuals directly who are genuinely in need. We pay taxes to allow them to do this. I don’t want to pay extra to the energy companies so they can take on this role. As far as truth is concerned, this is what Ofgem should be providing.

Some excellent news for a Friday, First Utility have responded to this by announcing that they will be cutting charges for customers who don’t pay by direct debit to £2 a month. Hopefully this will act as a nudge for the other energy providers to do the same – we’ll keep an eye on them!

Brilliant news! Keep the pressure ongoing until the others follow First Utility.

Reverting to the subject of the elderly lady who received a disproportionate demand for an extra £64 on her fuel bill this is great news. £24 is a much more realistic amount to cover the Energy Co’s admin costs. It appears at last they are beginning to listen to public pressure and people’s choices are not being compromised by monopolistic demands.
Congratulations Robert Halfon for bringing this into public awareness.

Richard Sage says:
8 February 2014

The extra costs from those not on direct debit really are substantial – not so much the processing of cheques, as the chasing of those who fail to pay. I do not see why those of us who do set up a direct debit should have to subsidise those who do not pay on time.

Skeptic says:
8 February 2014

I pay my bills electronically by direct credit each quarter (and immediately) but they still charge me £5 or more even though it costs them virtually nothing. Quite frankly this is ‘legalised’ theft and those responsible for it (including Ofgem) should be punished.