Pre-Paid Profit

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I guess not everyone spends their days reading through the blogs of BBC journalists. It’s not the most rewarding of pastimes and at some points is downright infuriating. A little while ago I came across an article by Robert Peston in which the Beeb’s esteemed economics editor poured scorn on the idea that the energy companies were guilty of “rampant profiteering”.

I was reminded of Peston’s piece the other day when a friend, having recently moved to a new flat, explained that she was receiving her electricity from British Gas and her gas from Southern Electric. Before I had the chance to chortle at the illogical nature of the privatised utilities she began to describe the difficulties that her new neighbour was suffering with her energy providers.

Some time ago, crippled by debt and unemployment, the neighbour found she was unable to pay her electricity bills and was eventually £200 in arrears. On her return to her flat, after some time away, she found that the electric company had put her on a pre-payment key meter. Topping it up with £10 of credit she was baffled to find that within only a couple of hours all her lights went out, her cooker turned itself off and the telly packed up. Apparently the meter, programmed to know that she was in debt to the company, had taken £9 to begin repaying the outstanding balance and left her a quid for electricity.

Whether something similar will happen each time she puts the key in the meter, or will happen once every week I simply don’t know. More importantly neither does she.

However she is not alone in being shafted by energy providers who find forcing people – particularly those that owe them money - on to pre-payment key meters extremely lucrative. A trawl of chat rooms and forums reveals huge numbers of people who are rightly disgusted with the cost of key meters. The anecdotal evidence on show suggests people are finding their energy bills more than doubling after the transition from direct debit payment to pre-payment.

Last week energy watchdog Ofgem published the initial findings of a report showing that energy companies are making a £550 million profit each year from the additional charges they place of pre-payment meters. There are approximately 5.4 million people in the country that pre-pay for their energy. Each one of these people can expect to pay around £120 more per year than if they were able to pay via direct debit. Often it is the poorest and most vulnerable that pre-pay for their gas and electricity. One third of lone parents, people with disability or long term illness, and the unemployed find themselves with key meters. And the numbers keep on increasing. The Ofgem study goes on to say that 1000 pre-payment meters are being fitted every day to “recover energy debt”.

Of course those people who pay in arrears, either quarterly or monthly, have also been on the receiving end of the price hikes forced through by the “Big 6”, the energy companies that supply gas and electricity to people in the UK. In July, Centrica, the parent company of British Gas, announced that gas bills would rise on average by 35%, electricity bills by 9%. British Gas customers have seen their fuel bills rise by 75% since 2003. Unsurprisingly other suppliers quickly followed suit.

Energy companies have pinned these rises on increasing wholesale costs – particularly those of gas. While these costs have certainly gone up, the figures suggest that they have been disproportionately applied by firms in this country. The latest OECD figures show that the increases to UK gas and electricity bills, some 29%, are nearly double that of the average rise in other EU countries (15%). When compared to the rises in Germany (12.2%) and France (14%) the conclusion is simple. These people are hell bent on money whatever the cost.

Perhaps the charge of rampant profiteering would be easier to rebuff were it not for the huge sums of money being made by these corporations. The day after its customers were on the receiving end of its biggest ever price rise, Centrica announced profits of £992 million, and promptly raised their shareholders dividends by 16%. In total the payouts to shareholders by the companies supplying gas and electricity stood at £1.635 billion in 2007. This is a 19% increase on the previous year and the equivalent to £75 per household. Just to add insult to injury, British Gas also announced in July that it would be cutting 1500 jobs – or 8% of its workforce – in a bid “to improve efficiency”. It is now on track to “achieve £60 million in savings”.

New Labour is well aware of the problems. In the budget earlier this year Alistair Darling, a man not exactly feted for his warmth and compassion, decreed that the government would seek out a “better deal” for the 5 million people who live in “fuel poverty”. Yet even this mealy-mouthed promise has fallen by the way side. Perhaps the Thunderbird of the Exchequer will announce measures to tackle the problems in his mini-budget speech next week. Don’t hold your breath.

Socialists should be making all sorts of demands at this time. We should be calling for a windfall tax on all the energy corporations, not to mention the oil companies as well. We should be calling for the government to be capping prices and giving additional payments to those most vulnerable - those most susceptible to the cold, those stuck on key meters, and those struggling to make ends meet. A massive project of insulating houses would not only help people through the cold months ahead but also provide jobs and begin to tackle carbon emissions.

The question of public ownership is the most obvious argument to make. At a point in time when Gordon Brown is only too happy to pour billions of pounds into the banking sector, we should be raising the question of re-nationalising the utilities.

Unfortunately, whatever the government announces will be insufficient to deal with the problems working class people will face in the months ahead. As winter draws on the price of fuel bill rises will inevitably and tragically be measured in the numbers of people who die for the simple fact that they can’t afford to heat their homes. The human cost of the market and privatisation will be felt by millions.


Gareth Edwards

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