Robert Halfon is a member of the 1922 Committee Executive and MP for Harlow
Thanks to all the bad weather that 2014 has brought so far, 2013’s political controversy over energy prices continues apace.
It is no secret that consumers are feeling hard pressed. Utility bills have risen exponentially in the past few years: since 2007, the average electricity bill has gone up 20 per cent in real terms, whereas gas bills have gone up a shocking 43 per cent, proving that they are a major burden on the cost of living. Therefore, as Conservatives, not only is it essential for us to show that we take the problem seriously, but also that we have real solutions (i.e: not impossible to achieve Government-manipulated price freezes.)
The Chancellor has already taken a number of steps to help families who are struggling to pay their energy bills. This includes saving families up to £160 per year by ensuring that they are on the lowest tariff, rolling back green levies (cutting the average bill by £50), and raising awareness of how to switch providers and get the best deal.
However, there is still a lot more to do, such as lowering VAT on energy bills, continuing to scrap the harmful green taxes that push up prices, and encouraging competition. You can read more about this here.
To anyone who doubts this, it is worth looking at one particular example:
I was recently told about a pensioner in my constituency who had received a letter from her energy supplier, the Co-operative, saying that unless she started to pay her bills by direct debit, then she would be charged an additional £60 plus. Of course, I understand that companies do incur extra admin costs when processing other types of payment. However, £60 seemed quite excessive, particularly for an essential service – and especially since this constituent always pays on time, and mainly through the Post Office.
When I spoke to the Co-Op, who were very open and transparent, I was shocked to hear that this £60 was actually at the lower end of the scale, and that other utility companies charge much more.Spending the past few days examining what other companies do, the results were shocking. Many companies use payment other than direct debit as a extortionate stealth tax on their customers.Out of the 26 companies that responded, only five allowed their customers to pay by direct debit, and 17 charged their customers different rates depending on what method they used to pay. Only four companies charged their consumers the same whether they paid by direct debit or not. In a euphemism extraordinaire, many of the companies that charged extra did not say that they were adding a surcharge – rather, they were “discounting” people’s bills who use direct debit because they have lower costs.
Whilst it may be understandable for there to be a modest discount, many would question whether companies like Spark Energy truly save £390 on an average bill if their customers pay by direct debit. Although Spark Energy came out as the most expensive from those I surveyed, other companies also charged amounts that most would consider to be disproportionate.
For example, SSE charges customers £80 for both gas and electricity, whilst First Utility charges consumers £8 per month – or £96 per annum. These results tie in with official DECC figures that show the average annual surcharge for people not paying by direct debit is £114 per year.
Surprisingly, 45 per cent of people do not pay their electricity bills by direct debit. This can be for a variety of reasons – many customers fear being over or undercharged if they pay by direct debit, some feel they have more control over their money if they pay by quarterly credit, and some (a million people, according to a 2010 estimate) do not have a bank account, and are therefore unable to pay by direct debit.
This isn’t an attack on the free market, but instead a critique on the greed of some big corporates, which compared to other industries have little competition. If some utility companies can get by by not ripping off consumers who don’t pay by direct debit, then it is clear that this is a glutinous luxury, rather than a necessity.
People should not be penalised for how they pay their energy bills. After all, it would be unacceptable for Tesco to charge you an extra 10 per cent on your weekly shop because you didn’t pay in cash. It is reasonable to expect customers to pay a moderate administration fee (in my report I suggest £24 a year).
Therefore in my report I make the following recommendations:
First, minimising the surcharge. A limit on the surcharge or ‘discount’ that a company can charge for administrative purposes should be imposed. I suggest £24, rising in line with inflation.
Second, transparency. Companies should make it clear to customers why they are being charged a particular amount for paying by a certain method. 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 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.
Third, an inquiry by the authorities. There should be an inquiry by the Government or the regulators to examine the issue of direct debit payments and non-payments, that explores why some companies are able to allow some customers to pay however they choose without incurring extra cost, to ensure that customers are not paying more than is necessary.
Why does all this matter? Obviously, we should be doing all we can to help consumers, particularly given difficulties in the current economic climate. But even more importantly, as Conservatives we should not be shy of exposing Corporates when they are plainly ripping off the consumer. Our party is at its best when we are the friends of small business and fair business, and the enemy of the worst excesses of corporatism.