The Observer view on the shameful premium that the poorest pay for their energy

The poverty premium was a term coined decades ago to describe the grim reality that people living on the edge often end up paying some of the highest prices for essential goods and services. And nowhere is that gap more evident than in the energy market, where low-income households are far more likely to be on the prepayment meters that mean they end up with higher energy costs than their more affluent neighbours: a longstanding injustice that has never been addressed by government. Last week, an undercover Times investigation revealed the appalling practices being used by British Gas to forcibly install these meters in the homes of vulnerable people.

No vulnerable household should be forced to move on to a prepayment meter. These meters cause two kinds of detriment to low-income households. Energy costs more per unit than paying by direct debit, in part because of the relatively high daily standing charge. Additionally, any debt a customer owes an energy company is added as a surcharge on the per-unit cost, pushing up the effective per-unit outlay even further. If a customer cannot pay, their energy is cut off. But the daily standing charge continues to accrue and their power won’t be turned back on until this accrued charge is paid off. And this at a time when the global energy sector is raking in record profits as a result of Russia’s invasion of Ukraine.

Under regulatory rules, energy companies are not allowed to impose prepayment meters on vulnerable households. Yet the undercover investigation revealed that this is what is happening. British Gas has contracted with debt collection firms that have been granted warrants by magistrates to break into people’s homes to forcibly fit prepayment meters. Their employees are not supposed to fit them if there are signs that vulnerable people live in the home, such as children or someone with a disability. But they work to contracts that pay more the more meters they fit, incentivising them to ignore this. Many shocking stories have since emerged, including one woman with mobility issues who woke up to find two strange men downstairs in her living room after they broke in to fit a meter – a serious safeguarding issue. In other cases, they have fitted meters in households with disabled children who use electric hoists and wheelchairs and people with serious mental health issues.

This is a terrible failure – of energy companies for flouting the rules; of the regulator Ofgem for not intervening more proactively; and of the courts system for granting these warrants in the first place. One former magistrate has told BBC News how he resigned after a change in the assessment system. He alleges that before 2019, magistrates had greater opportunity to assess energy company applications for warrants, but that after these changes “we would just get a list of addresses”. It is right that Ofgem has told energy companies to suspend the forced fitting of prepayment meters while it investigates how widespread these practices are across the sector.

The forced installation of prepayment meters for vulnerable households is the very sharpest end of a deeper issue: the fact that rising energy prices after a decade of benefit and tax credit cuts and sluggish wage growth have pushed increasing numbers of households into fuel poverty. The lowest-income households are also far more likely to live in poor-quality housing stock that is energy inefficient and so costs more to heat. From April, the energy price guarantee is rising, capping the annual bill for the typical household at £3,000 a year, up from £2,500, and the government is not currently planning to repeat the £400 universal rebate next winter. There will continue to be targeted support for households on benefits, but the fuel charity National Energy Action says that there are millions of vulnerable households not in receipt of means-tested benefits that will miss out.

A coalition of charities wrote to the chancellor last month asking him to introduce a new social energy tariff to protect vulnerable energy consumers from April 2024. This would guarantee a lower energy price, subsidised by the government, for these households defined more broadly than just those on means-tested benefits, including those living in poor-quality housing stock, households with caring responsibilities and people with long-term health conditions. The government also needs to force energy companies to reduce tariffs on prepayment meters so they are no more expensive than direct debit tariffs and to improve the regulation of the private rental sector so that landlords have to make homes more energy efficient.

Low-income households are already going to extreme ends to try to keep their energy bills low: keeping the heating off, eating cold meals, even turning off their fridge-freezers. Government support with energy bills will become more targeted over the next year – a good approach in principle, but the targeting is too blunt and will leave many needy households facing bills that are hundreds of pounds higher next winter. The government urgently needs to introduce a social tariff as a more comprehensive safety net to avoid even more households falling into fuel poverty.