Consumers owe energy suppliers £728 million

New research from uSwitch.com has revealed that despite a dip in the number of households in the red to energy suppliers (5.5 million households down from 6.5 million last year), the average debt has increased to £132 (from £114 in 2008 – a 16% increase), with consumers now owing an estimated £728 million on their energy bills.

Four in ten (41%) of those in debt to their energy supplier owe more than they did this time last year while 17% report that they now owe less. This suggests that many households are still struggling to get to grips with the 42% or £381 hike in prices in 2008 and haven’t felt much benefit from the 4% or £54 drop in prices seen last year.

A quarter of households in debt (25%) intend to pay it off by lump sum, while four in ten (40%) plan to increase their direct debit. However, 8% are considering agreeing a repayment plan with their supplier and 5% are thinking of moving onto a prepayment meter (PPM), a 3% increase on last year. Worryingly this indicates that consumers are indeed starting to view PPMs as a useful budgeting tool and a way of managing their energy costs, despite the fact that PPMs are a more expensive way of paying for energy than direct debit.

Despite a long run of low wholesale prices, just four of the big six suppliers – British Gas, Scottish and Southern Energy, E.ON and npower – have announced a drop in prices this year. Of these, only British Gas has already implemented. The average household energy bill after the cuts come into effect will be £1,209 – £297 or 33% higher than at the beginning of 2008. This significant increase coupled with the impact of the recession and the cold winter will have played a role in pushing up energy debt, adding even greater weight to calls for suppliers to cut their prices.

Ann Robinson, Director of Consumer Policy at uSwitch.com, said:

“The impact of the 42% or £381 hike in energy prices in 2008 cannot be underestimated – consumers are still feeling the pain and subsequent price cuts have done little to ease this. The fact remains that consumers have been left facing bills that are £297 or 33% higher than at the beginning of 2008. This has clearly taken its toll with the average amount owed on energy bills increasing by 16% since 2008, yet again raising serious concerns about the affordability of energy in this country.

“Energy debt can be a catch-22. Despite knowing they could reduce their bills by moving to a lower cost energy plan, consumers may perceive debt to be a barrier to switching. In fact Ofgem has worked with suppliers to minimise the number of switches blocked due to debt.

“The increase in energy debt this year is symptomatic of the fact that we are entering an era of high cost energy. Households will have to adapt if they are to protect themselves from spiralling energy bills. There are two key steps to this – make sure you are paying the lowest possible price for your energy and cut down on the amount of energy you use. Consumers should also make sure that they or their supplier are taking regular meter readings as relying on estimated bills can be a shortcut to debt. Any consumers who are concerned about managing their energy bills should contact their supplier to discuss the options.”