I wish to address a continuing and worsening issue: the difference between what people who obtain their energy from pre-paid meters pay for their energy and what everybody else pays, especially those who pay by direct debit. The difference is substantial—perhaps 16 per cent., and rising, of the fuel bill of someone who is paying by pre-paid meter—and, by and large, it falls disproportionately on those who are least able to afford their energy supply.

A substantial number of people have pre-pay meters—3.5 million electricity meters in 26 million meters overall and 2.2 million gas pre-pay meters in 20 million overall. People have pre-pay meters for a variety of reasons: some because it helps with budgeting; some because they got into debt under previous arrangements and the meter was installed, among other things, to repay their energy debts; and some because they have inherited the meters from previous tenants or owners. However, what is true for all of them, without exception, is that they pay more for energy using a pre-paid meter than direct debit customers pay. With the exception of customers of Scottish Power, they all pay more than the supplying company's standard tariff.

Although not all pre-pay meter customers are in Fuel Poverty, or even among the lower paid, they are disproportionately disadvantaged compared to customers paying other tariffs. Forty per cent. of pre-pay customers are in the two lowest income deciles, which is twice as many as the comparator of all customers. Ten per cent. of pre-pay electricity customers are in fuel poverty compared with only 3.5 per cent. of direct debit customers. In short, those who need affordable energy most pay far more for it than those who do not. What is worse, because of the nature of pre-payment, most of them are not aware of that fact.

The issue is not brand new. The recent energy white paper stated that the

"cost differential between direct debit and pre-payment meters (used by a relatively high proportion of low income households) is increasing, standing at about £120 for a combined gas and electricity bill compared to £84 in 2005".

At the time, as I have pointed out, that was a 16 per cent. difference in the average gas and electricity bill.

As the White Paper noted, the differential in 2005-06 was about £70, which was worse than the previous year, and it is even worse now due to the effect of aggressively low-priced online tariffs. The differential may now be about £150 for a combined gas and electricity bill, and it is running out of control.

In January 2007, the matter was raised in the House by several Members during a debate on energy costs initiated by my right hon. Friend Mr. Clarke. The National Housing Federation constantly raises the issue with Members and Ministers, and I am indebted to the federation for advice and information for this debate. Members have tabled questions and a recent early-day motion on the subject attracted the signatures of 172 right hon. and hon. Members.

I am not drawing the attention of the House to something new, but as matters stand, it seems that the differential is on an inexorably widening path and, as far as I can see, for no good reason other than that it is possible for energy companies to levy differential charges with little comeback from the regulatory authorities. It is stated by some of the energy companies, and indeed recently by Ofgem, that pre-pay meters cost more to administer than direct debits or standard tariffs; there is the meter, the cost of recalibrating when tariffs change and paying post offices and shops to provide top-up points for cards. Ofgem suggested that the overall cost merited a difference of £85 per year between a direct debit customer and a pre-paid meter customer.

Those are raw data and do not include the fact that pre-paid meter income is 100 per cent. secure, unlike direct debits, which can fail through lack of funds, or standard Bills, which can go unpaid or need chasing. Indeed, that security of payment is of significant benefit to the energy companies.

Overall, those differentials, however things are cut, do not justify the differences in charge, nor do they explain why the difference keeps widening or why there is such a variation in charges between energy supply companies. Indeed, one company, Scottish Power, runs pre-pay meter tariffs that are lower than the standard tariff. How come, I wonder, it has not gone out of business by doing so? Indeed, the variations are quite considerable and the differential is highest on dual-fuel tariffs.

Customers of British Gas pay £107 more on pre-pay gas meters than the average price for gas on direct debit and £33 more for electricity. Customers of EDF pay 25 per cent. on average more for gas pre-paid than for gas on direct debit and £8 more for electricity—the same as the standard tariff. Customers of npower pay £72 more on pre-pay gas meters than on an average direct debit and £81 more for electricity. Powergen customers pay £91 more for gas and £33 for electricity. Scottish and Southern customers pay £77 more on average for gas on pre-pay meters than on direct debit and £22 more for electricity. Customers of the only company with a lower tariff than the standard tariff—Scottish Power—pay £30 more on a pre-pay meter than on the average direct debit and £49 for electricity.

For dual-fuel customers, the gap is even wider. npower has a gap of £184; British Gas, £152; Powergen, £141; Scottish and Southern, £115; Scottish Power, £93, but the price is cheaper than the standard dual-fuel tariff; and EDF, £68.

Ofgem has recently announced that it intends to run a campaign to persuade pre-pay meter customers to switch. On the basis of those figures, that perhaps looks promising at first sight. Scottish Power should clean up. But there are big problems in relying on switching to get to grips with this problem. It might make some marginal difference, but only a marginal difference, for two reasons. Many pre-pay meter customers are unaware that they are paying more. The bills are not added up and compared in the way that they might be with other forms of tariff. Indeed, an Ipsos MORI prepayment customer workshop in February 2007 for Ofgem stated, after interviewing various participants, that

"only three out of 20 gas pre-pay meter customers and seven out of 28 electricty pre-pay meter customers knew theirs was not the cheapest method of paying."

In any event, some pre-pay meter holders are in debt because of recalibration—the process of back charging to recover delays in the recalibration of meters following tariff changes. That has gone down: 115,000 or so people are now in that situation. The figure was more than 400,000 before Ofgem took action in December 2006. However, those people will not be switchers, even if they know that their meters are more expensive. Larger numbers of people than that—some 500,000 electricity customers and 300,000 gas customers—are repaying debt incurred by non-prepayment meter arrangements. That represents 13 to 14 per cent. of all meter customers, and those people will not be switchers either. So what might we do?

The White Paper also says:

"We are concerned about these increases, and will look at ways to encourage best practice in protecting the most vulnerable consumers from the large differences in bills because of the payment method they use."

I recognise that the social tariff arrangements that EDF and British Gas have adopted go some way to assist those who are most vulnerable with their payment of gas and electricity bills. The British Gas tariff matches that for most vulnerable customers to the direct debit tariff. Nevertheless, it does not directly address the pre-pay meter issue.

Switching, as I have mentioned, is often of only dubious or marginal value. Perhaps Ofgem, instead of or in addition to its switching campaign, should introduce maximum tariff differentials. That might reflect the cost of pre-pay meters if all factors are genuinely taken into account, but my view is that it would not hurt energy companies simply to equalise tariffs. If Scottish Energy can do it and EDF can come close to it, so can all energy companies.

In many ways, the long-term solution is the roll-out of real-time, remotely calibratable smart meters. There then will be no arguable or possibly justifiable differentiation between tariff costs, but that is some way away. Meanwhile, literally millions of customers will this winter be paying in inflated energy costs a sum getting on for the amount of the winter fuel allowance simply because they are, for whatever reason, on a pre-paid meter. That is not right; it should be put right.