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Labour pledges to address ‘unjustifiable’ costs of prepayment energy meters

Labour estimates its policy would help to bring prepayment energy prices into line with those for direct debit customers (Alamy/PA)
Labour estimates its policy would help to bring prepayment energy prices into line with those for direct debit customers (Alamy/PA)

Labour has said it wants to put a stop to “outrageous” premiums that energy prepayment meter customers face.

Shadow chancellor Rachel Reeves said Labour would end the “unjustifiable” practice that can result in people with energy prepayment meters being charged more than those who pay by direct debit.

The call for change comes as analysts have predicted that typical energy bills could rise to approximately £3,500 in October, and more than £4,200 in January.

Labour estimates that its policy would help to bring prepayment energy prices into line with those for direct debit customers and would provide relief to four million households.

The party said its plans are part of a larger package of cost-of-living measures that Ms Reeves, Labour leader Sir Keir Starmer and shadow energy secretary Ed Miliband have been working on ahead of the August price cap announcement from Ofgem.

Ms Reeves said: “It’s outrageous that people on prepayment meters have to pay more for their energy. Why should those with the least have to pay more to heat their homes and put the lights on? This is unjustifiable and morally wrong.

“As energy prices spiral, this unfair prepayment premium must end. Labour would make sure that no-one pays over the odds for the same gas and electricity that everyone else gets, as well as taking broader action to help people manage their bills over the winter.”

She added: “We’re in the midst of an energy emergency that is only going to get worse. A crisis like this requires strong leadership, but instead the Conservatives have lost control of the economy and have nothing to offer. They need to get a grip and take urgent action.

“Labour will take the action that’s needed to get us through this national emergency, and build the stronger, more secure economy Britain deserves.”

It is understood Labour would eliminate the gap between the two price caps and reimburse energy companies for the difference over the winter, estimated to cost around £113 million between October and March.

This would be paid for through a strengthened windfall tax on oil and gas companies, which the opposition claims currently has a “loophole” which allows energy giants to exploit it in order to pay less tax.

Labour’s calls for change come after a meeting between ministers and energy executives on Thursday in which the Prime Minister appealed to the bosses to help ease the cost-of-living pressures.

Following a roundtable meeting with the sector in Downing Street, Boris Johnson said: “We will keep urging the electricity sector to continue working on ways we can ease the cost-of-living pressures and to invest further and faster in British energy security.”

However, there was no announcement of any immediate new measures to help consumers.

A boss at one of the UK’s largest energy companies agreed that the regulator should look at how prepayment meter customers’ bills could be reduced.

Philippe Commaret, managing director of customers at EDF, said: “There is some correlation between customers who are financially vulnerable and those who prepay for their energy, so the fact these customers pay more is unfair.

“It is also outdated thanks to smart pay as you go meters. We would like Ofgem to look at how the price cap for smart prepayment meter customers could be reduced.”

A spokesperson for the Department for Business, Energy and Industrial Strategy said: “Pre-payments meters remain an effective way for people to pay for their energy use whilst managing costs and debt, while the energy price cap protects four million pre-payment meter customers from overcharging by energy suppliers.

“We understand that global inflationary pressures are squeezing household finances. This is why we are providing a £37 billion package of support to help households in these challenging times, including a £400 discount on energy bills which can be accessed by those on prepayment meters and £1,200 to around eight million low-income households.”