Millions of vulnerable households including poor pensioners on prepayment meters will spend nearly a third of their income on energy costs this winter, new research has found.
Around four million households using prepayment meters (PPMs) will spend over 30 per cent of their income on energy costs in December, January and February, a report by the Resolution Foundation found.
“As PPMs are concentrated among poorer families, this drain on family finances is unsustainable, leading to families sitting in cold, dark homes,” the think-tank said.
Rising energy costs will be accompanied by cuts to the winter fuel allowance for about 10 million pensioners this winter after Chancellor Rachel Reeves announced that the payment will be means-tested, meaning only those on pension credit or other income-related benefits will be eligible.
The number of pensioners receiving the winter fuel allowance – a payment of up to £300 which helps them cover their heating expenses – will drop from 11 million last winter to 1.3 million this winter.
While Age UK estimated that around 600,000 older people used PPMs in 2023, this figure is likely to have increased as a result of rising energy costs, according to Dennis Reed, director of the Silver Choices charity supporting the elderly.
“Many poor pensioner households have been moved on to PPMs because they have been unable to meet their soaring energy bills,” Reed said.
“The cruel decision to scrap winter fuel payments for most older people will accentuate this trend.
“It is a complete disgrace that the Government is forcing so many pensioners to survive in a cold and miserable house over the Christmas period.
“Ministers refuse to meet us to discuss solutions to this winter energy crisis, citing ‘diary commitments’, but what is more important than poor people potentially dying of cold?”
Means-testing the winter fuel payment is expected to save the Treasury around £1.3bn in 2024/25 and £1.5bn in subsequent years, allowing the Government to address the £22bn black hole in public finances Labour claims was left behind by the Conservatives.
However, a surge in claims for pension credit since the winter fuel payment cut was announced may mean that savings will be significantly lower than the Treasury had anticipated.
A Government spokesperson said: “We are doing everything we can to support vulnerable families this winter – including through the £150 warm home discount expected to support three million eligible households, while around 1.3 million households in England and Wales will continue to receive up to £300 in winter fuel payments.”
The spokesperson added that the Government is working closely with Ofgem to ensure that suppliers “only install involuntary prepayment meters as a last resort – ensuring consumers can afford to pay for their energy”.
More than half of PPM households are in debt to their energy suppliers, figures by Ofgem show.
The Resolution Foundation said that these debt costs are recouped when meters are topped up, leaving less credit available for much-needed energy.
Ofgem announced last month that the energy price cap will increase by 1.2 per cent from January to March 2025, raising average household bills by £21 per year or around £1.75 a month.
The prepayment price cap level will rise from £1,669 to £1,690 per year.
“For many households the recent energy crisis is an episode they’re keen to forget,” said Jonny Marshall, principal economist at the Resolution Foundation.
“But for the four million households on prepayment meters this winter, it will feel like the crisis never ended.
“Persistently high energy costs and heavy use during the cold winter months mean that households on prepayment meters are set to spend almost a third of their family budgets on energy during the next three months.
“These high costs can squeeze out other important spending, and increase the risk of people rationing their energy use in a way that can harm their health.
“The Government needs to put prepayment meter customers front of mind as it seeks to reform and decarbonise our energy systems, in a way that reduces costs for everyone.”
Matthew McGregor, chief executive at the 38 Degrees campaign group, said: “Another day, another shocking headline about energy bills this winter – and that’s before the higher price cap kicks in on 1 January.
“The Government must do more to help those struggling most – such as introducing a new social energy tariff. That’s why more than 80,000 people have signed a petition calling on Keir Starmer to take action now so no one freezes this winter”.
Adam Scorer, Chief executive at fuel poverty charity National Energy Action, told The i Paper: “Prepayment meter customers are most vulnerable during winter. Having to pay the costs of energy as you use it in wintertime is punishing and beyond the means of millions.
“People on prepayment meters may also need to pay energy debts and the standing charge before their money can start to warm their home.
“We’re calling for a help-to-repay scheme so that those most in need can get out of impossible levels of energy debt. We are also campaigning for a social tariff so those on the lowest income wouldn’t accumulate such devastating debt in the first place.”
The Government spokesperson said: “In November, Energy UK, in collaboration with the Government, published a Winter 2024 Commitment which promises £500m of industry support to billpayers this winter. This includes credit on bills or prepayment meters, and enhanced debt write-off schemes and hardship funds.
“We welcome the steps already taken by Ofgem to protect prepayment meter customers, and we will continue to work closely with them to ensure that suppliers only install involuntary prepayment meters as a last resort – ensuring consumers can afford to pay for their energy.”
An Ofgem spokesperson said: “We know the cost of energy remains a challenge for many households. That’s why we have set out plans to reset the debt, and reform the system so customers receive a higher standard of support from their supplier when they are struggling.
“We have taken action already and have changed standing charges for PPM customers so they are not charged more than anyone else. We have also toughened up requirements on suppliers to take care of their customers, and to actively identify anyone who may be struggling to pay their bills and offer support. We’ll continue working closely with the Government to consider additional support.”
Liz Truss needs to take her own advice, and cease and desist