Energy, economy, environment – How do we protect residents from compounding crises?

Peabody's Director of Sustainability, Richard Ellis, writes about the role of prepayment meters in the energy crisis and why it's time for change.

The energy crisis is impacting everyone. However, as is often the case, those on low incomes are at the sharp end. Recent estimates suggest those on the lowest incomes could be spending £1 of every £7 they have on energy this winter. As social housing providers our customers are typically on the lowest incomes.

We highlighted the energy affordability crisis last year in the October 2021 edition of our Peabody Index. In April 2022 we surveyed our residents again to understand their experiences of increased energy costs as well as wider thoughts on the energy sector.

Our residents told us what they were doing to save money, how they felt about net zero ambitions, and more. However, a key issue that came up was around the use of prepayment meters.

The government has now announced another set of large-scale interventions to attempt to stem the energy crisis. However, there was one glaring omission. Despite Citizen’s Advice reporting that they are helping a record-breaking number of people that cannot top up their prepayment meters, we are yet to hear any mention of them by the government or Ofgem.

Prepayment meters

According to the English Housing Survey 2019, 42 per cent of social renters use a prepayment meter. This is twice the rate of use in the private rented sector, and 10 times the rate of owner-occupiers.

There are two types of prepayment meters - “legacy” meters involve cards or keys which are loaded with credit manually at a shop, and smart prepayment meters where payment can be made online.

There is a common misconception that prepayment meters are used exclusively by households who haven’t paid their bills. However, just over half our tenants with prepayment meters that we surveyed told us that their prepayment meters were already there when they moved in – typically because of a previous tenant having had it installed. Of those who had it put in since they moved in, this had most often been at their request rather than being forced on them.

Interestingly two thirds of residents said that they liked using prepayment meters, citing reasons such as being more in control of their expenditure – even though they were often aware of the higher costs of paying this way.

So, if residents like to use prepayment, what is the problem?

Paying for energy via prepayment is more expensive due to the payment uplift which energy companies are allowed to add to standing charges. This is to cover the higher cost of maintaining the meter compared to direct debit. This costs prepayment customers around £50 more a year than those who pay by direct debit, and this is expected to increase to £60 in October. This is unjust and punishes the poorest and we are calling Ofgem to mandate a price cap that is the same, regardless of payment type.

Disconnection

The larger, looming problem is that, by design, if a prepayment meter is not topped up the resident simply will not have access to energy at all.

During 2021 Citizens Advice helped around 8,600 people who could not top up their meter. This year, they had helped that many people by May. Their projections are that they expect to see 21,604 people unable to top up meters by the end of 2022.

While heating will be a huge concern this winter, disconnection for many people will also mean:

• No refrigeration for food
• Being unable to charge phones and other essential devices
• Lack of Wi-Fi access
• Being unable to wash clothes adequately

It is impossible to estimate the knock-on impact that this will have on health, safety, education, and self-esteem; we simply haven’t seen this in our lifetimes before.

Prepayment customers will be experiencing this crisis in a different way to those who pay by direct debit.

Debt

In April our research found that prepayment meter customers were nine times more likely than direct debit customers to borrow from a short-term lender to pay their bills. This means that on top of paying more for their energy already, prepayment users are also more likely to enter a spiral of debt.

To illustrate this – if a prepayment customer borrowed the money to pay to top up their meter for just one month (£212[1]), they would repay £410 if they managed to pay it back within six months alongside continuing to top up their meter as required.

This is not sustainable.

What are we asking for?

We’ve added our voices to many others calling for more support for households. In particular we have asked for Ofgem to:

• introduce a social tariff that reduces the rates for prepayment customers to the same as direct debit customers.
• work with energy companies and housing providers to increase the number of smart meters, making it easier for customers to switch payment methods if they like.

And what should social landlords be doing?

Reducing energy demand

The UK has some of the poorest insulated homes in Europe, so it is no surprise that we are expected to be hit by this crisis significantly.

Rather than shying away from climate action in the face of the cost-of-living crisis, it is time to double down. As a sector, we should take the lead in working towards a nation that has warm homes, reducing energy demand and making us more resilient against market volatility.

We have asked the government to support us in this by making improvements to the Social Housing Decarbonisation Fund that will help us complete these essential works.

Providing support

While many might think that our role as social landlords is only to provide affordable housing, as a sector we are well placed to provide support to those who need it most.

At Peabody, we have several offerings that provide advice to residents on issues such as:

• Debt and welfare
• Employment
• Energy saving advice

At Peabody, we have also increased our hardship fund by 233% this year to help those most in need with the cost-of-living crisis.

However, as we all know, inflation is impacting operating costs significantly which puts a squeeze on our ability to help residents. So, we must work together to find innovative and impactful ways to help shield residents from this crisis where we can.

Working together to advocate for tenants

As social housing providers we are in a strong position to advocate for and support those most in need. We can listen and understand the wider issues impacting residents outside of their relationship with us. We should use this information to advocate on behalf of our tenants whether that is engaging with energy companies on increasing the number of smart meters in our stock or pushing government to help those likely to struggle with the cost-of-living crisis.

If we approach this individually, we might make some progress. However, if we combine resources, we stand a significant chance of making real change and improving the lives of our tenants.

If you would like to know more about this research or how we can take forward its recommendations together, please get in touch at research@peabody.org.uk.

Read our full report to learn more about our findings and policy recommendations.

Richard Ellis, Director of Sustainability at Peabody

[1] Based on the price cap announcement made on 8/09/2022 of average bills being £2,500 plus the payment uplift for prepayment meters.