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Energy customers with prepayment meters are overpaying by £389m a year

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energy customers with prepayment meters are overpaying by 389m a year

Households that have prepayment meters are paying over the odds for their energy supply to the tune of nearly half a billion pounds a year, new data claims. 

More than four million prepayment meter customers are overpaying on their energy bills by an average of £94 a year each, when compared to those with a standard credit meter, according to research from Compare the Market.

One of the main reasons prepayment customers are likely paying more is due to their lack of choice when it comes to different tariffs with only four fixed deals available to them.

Some 64 per cent of prepayment customers are on a standard variable tariff, which are typically much pricier than fixed deals, with the average annual cost coming in at £1,195 – £39 more than a non-prepayment meter SVT.

Households that have prepayment meters are overpaying for their energy by £389m a year

Households that have prepayment meters are overpaying for their energy by £389m a year

Households that have prepayment meters are overpaying for their energy by £389m a year

This is compared to just 32 per cent of non-prepayment customers who are on SVTs.

Currently, the energy price cap for those on SVTs sits at £1,162 per year whilst for those on prepayment meters is at £1,200 per year.  

Prepayment tariffs, like standard tariffs, can be either fixed or variable. The research found that the cost differences between tariff types are significant, however, especially for those on lower incomes.

The difference becomes pronounced when comparing a fixed term prepayment meter tariff with a non-prepayment meter fixed tariff, with the prepayment meter being on average £33 more expensive a year.

The annual difference in price between the average prepayment customer on an SVT compared to a customer with a standard credit meter on a fixed term tariff is £219 per year.

When compared to the cheapest fixed credit meter tariff on the market, the cost difference currently sits at a huge £431 per year.

This is particularly concerning as many of those on prepayment meters are vulnerable customers who need to save money the most.  

A lack of switchable tariffs available to prepayment customers could be driving the wide price differential between these customers and those on standard credit meters.

COST DIFFERENCE BETWEEN ENERGY TARIFFS 
Energy Tariff Annual average cost Cost difference
Prepayment Fixed Tariff £1,009 £33
Standard Credit Meter Fixed Tariff  £976   
Prepayment Standard Variable Tariff £1,195 £39
Standard Credit Standard Variable Tariff  £1,156   
Source: Compare the Market     

There are 283 tariffs currently available for non-prepayment customers but just four fixed prepayment meter tariffs for customers to switch to.

This includes two with challenger supplier, Nabuh Energy, one with EDF and another with Simplicity Energy.  

Similarly, for prepayment customers there are only 45 variable tariffs available compared to 91 for customer on an SVT with a standard credit meter.

Previous research by Compare the Market also found that lower income households spend, on average, £60 more every year on their energy bills than higher income households.

This is due in part because lower income households are more likely to be on an SVT and not switch provider.

Peter Earl, head of energy at Compare the Market, said: ‘It is hugely concerning that prepayment meter customers – some of whom are undoubtedly classed as vulnerable – are paying considerably more for their energy on average than those on a standard credit meter.

Lower income households spend £60 more a year on energy bills than higher income homes

Lower income households spend £60 more a year on energy bills than higher income homes

Lower income households spend £60 more a year on energy bills than higher income homes

‘According to the latest government fuel poverty statistics over two million households are living in fuel poverty. 

‘British Gas’ swift reversal of its decision to only allow top-up of its prepayment meters by a minimum of £5 earlier in the year underlines how far consumers struggling to make ends meet must make each pound go.

‘A lack of competition in the prepayment meter market is likely a factor in these customers being offered poorer value deals in comparison to the majority of UK energy customers on standard credit meters.

‘With limited options available, it would not be surprising if prepayment meter customers are deterred from switching supplier to secure a better deal. 

‘Encouragingly, many energy suppliers will remove a prepayment meter free of charge for a customer who wants to switch to a standard credit meter.’

How can households change to a standard meter? 

Households can ask for their prepayment meter to be replaced with a standard meter if they are not in debt to their supplier. 

Most suppliers will also require customers to pass a credit check, as a direct debit tariff is effectively a credit agreement with the supplier. 

The customer should contact the supplier to check if they are eligible to have their meters changed. 

Many suppliers will do this for free if the customer is eligible, but some smaller suppliers may charge a fee. 

The supplier will then arrange for an engineer to visit the customer’s home to replace the meters. 

Will Owen, energy expert at Uswitch, said: ‘Prepayment fixed tariffs are only available to households that have a prepayment energy meter. 

‘There are no restrictions on who can have a prepayment meter installed, but this is usually done when a customer is in debt to their supplier. 

‘Some landlords also opt to have prepayment meters installed to ensure their tenants don’t fall into arrears on their energy bills. 

‘Rates on prepayment meters tend to be more expensive, so it’s more likely that a household would want to replace their prepayment meter with a credit meter rather than the other way around.’

Can you cut your energy bills? 

This is Money has partnered with Compare the Market to offer readers a simple way to try to save on their energy bills.

You can quickly check for great deals for your home. Plus, if you switch via our Compare the Market-powered service you can get Meerkat Meals and Meerkat Movies.* 

>> Find out if you could save: Compare deals now  

T&C’s apply  

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How to invest to make a profit and improve the world? TiM podcast

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Can you make a profit and get your money to do some good?

The stereotypical image of the stock market and investing isn’t one of caring about the world around you, it’s more characterised by a make money at all costs attitude.

But like many stereotypes that’s not accurate.

Most personal investors are just ordinary people trying to grow their wealth over the long term – and like the population at large many of them care about the environment, people being treated well and business being done properly.

But while it has never been easier to be a DIY investor, how often do people really think about where their money is going and what it is doing?

Socially responsible investing is a concept that seeks to change that. Trying to get ordinary investors to engage with their investments and use them to improve the world, whether that is at a corporate, social or environmental level.

On this second This is Money investing special podcast, Simon Lambert is joined again by Rob Morgan, Charles Stanley Direct’s pensions and investment analyst, to explore the world of socially responsible investing.

They talk about what it means, where the ESG (Environmental, Social, and Governance) buzzphrase has come from, how things have changed from the early days of ethical investing and what kind of investments people can make to improve the world we live in.

> Listen to the first episode of our special podcasts: How to start investing and grow your wealth

How to listen to the This is Money podcast 

We publish our podcast every Friday to the player on This is Money, above, and on Apple Podcasts (iTunes) and on the podcast platforms Audioboom and Acast, both of which allow you to listen on desktop, mobile, or download an app. We also now publish to Spotify.

To download the Apple Podcasts app if you do not already have it, go to the App store. Or go to either the Apple App store or the Google Play store on Android to download the Acast, AudioBoom or Spotify app. 

Press play to listen to this week’s full episode on the player above, or listen (and please subscribe and review us if you like the podcast) at Apple Podcasts, Acast, Audioboom and Spotify or visit our This is Money Podcast page.   

THIS IS MONEY PODCAST

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Easyjet appoints Tui executive to be new finance chief

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easyjet appoints tui executive to be new finance chief

Budget airline EasyJet has announced that Tui executive Kenton Jarvis will become the company’s chief financial officer.

He will succeed Andrew Findlay, who declared his intention to leave after surviving an attempted boardroom coup earlier in the year by the Luton-based airline’s founder, Sir Stelios Haji-Ioannou.

No start date has been given for Jarvis’ tenure, though Findlay has said he will leave the company once his contract expires in May 2021.

Jarvis will succeed Andrew Findlay as chief financial officer. Findlay survived an attempted boardroom coup earlier in the year by the airline's founder, Sir Stelios Haji-Ioannou

Jarvis will succeed Andrew Findlay as chief financial officer. Findlay survived an attempted boardroom coup earlier in the year by the airline's founder, Sir Stelios Haji-Ioannou

Jarvis will succeed Andrew Findlay as chief financial officer. Findlay survived an attempted boardroom coup earlier in the year by the airline’s founder, Sir Stelios Haji-Ioannou

Jarvis is currently the chief executive of Aviation at Tui Group, having formerly been the finance director of the now-defunct travel operator, Airtours Holidays. He has also worked for Adidas and as a chartered accountant at PwC.

Easyjet said Jarvis had ‘proven his ability to drive savings and successful turnaround programmes’ while working at Tui and that this experience was ‘critical’ as the airline recovers from the harm caused by recent travel restrictions.

The airline’s chairman John Barton described him as a man of ‘high calibre’ who brings ‘vast industry experience’ and ‘highly relevant skills to the role, which will prove crucial in the coming months and beyond.’

The announcement comes ten days after the airline said it expected to be flying at 40 per cent of its planned capacity between July and September, and cancelled flights to seven Greek islands due to the imposition of quarantine rules.

Lundgren called for a winter furlough scheme for airline workers, the abolition of air passenger duty tax for the coming year, and a more intelligent testing regime

Lundgren called for a winter furlough scheme for airline workers, the abolition of air passenger duty tax for the coming year, and a more intelligent testing regime

Lundgren called for a winter furlough scheme for airline workers, the abolition of air passenger duty tax for the coming year, and a more intelligent testing regime

Easyjet’s passenger numbers have already fallen off a cliff this year due to the temporary grounding of all its flights from March 30 to mid-June. They then restarted at a much-reduced capacity.

In its most recent quarterly update, it revealed that only 709 flights took off in the three months to the end of June, compared to over 165,000 in the same period in 2019. Group turnover also plummeted from £1.76billion to £7million.

Chief executive Johan Lundgren has called on the government to give targeted support to the airline sector, which has been devastated this year by travel restrictions designed to contain the coronavirus.

Jarvis is currently the chief executive of Aviation at Tui Group, having previously been the finance director of the now-defunct travel operator, Airtours Holidays

Jarvis is currently the chief executive of Aviation at Tui Group, having previously been the finance director of the now-defunct travel operator, Airtours Holidays

 Jarvis is currently the chief executive of Aviation at Tui Group, having previously been the finance director of the now-defunct travel operator, Airtours Holidays

The Swedish businessman wrote an article for the Daily Mail last week urging the government to implement numerous measures to try and revive the ailing British airline sector.

He called for a winter furlough scheme for airline workers, the abolition of air passenger duty tax for the coming year, and a more intelligent testing regime that ensures travellers coming from coronavirus ‘red zones’ are checked.

‘Airlines have had to raise funding, much of it debt of some form, which means they are mortgaging their futures to survive today.

‘This is going to hold back the UK’s economic recovery and make it increasingly reliant on foreign airlines. I can’t see why the government wants this.’

In its most recent quarterly update, Easyjet revealed that only 709 flights took off in the three months to the end of June, compared to over 165,000 in the same period in 2019

In its most recent quarterly update, Easyjet revealed that only 709 flights took off in the three months to the end of June, compared to over 165,000 in the same period in 2019

In its most recent quarterly update, Easyjet revealed that only 709 flights took off in the three months to the end of June, compared to over 165,000 in the same period in 2019

The financial impact of the pandemic has forced the firm to announce that up to 4,500 jobs – around 30 per cent of its total workforce – would be slashed to save money.

Pilots’ union Balpa called the company’s move an ‘ill-considered knee-jerk reaction.’ The organisation later accused EasyJet of trying to use pilots’ sickness records as an excuse to make them redundant.

It stated the move was ‘completely unacceptable in a safety-critical industry where pilots are legally required not to go to work if they are unfit to do so.

‘Retrospectively punishing these pilots for being sick or unfit to fly is outrageous and could significantly harm easyJet’s previously successful and well-regarded flight safety culture.’

Shares in EasyJet were down 7.9 per cent to £5.47 during the late morning. 

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What do negative interest rates mean for savers and mortgage holders?

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what do negative interest rates mean for savers and mortgage holders

Britain’s savers could soon be charged to hold money with their banks after the Bank of England left itself wide open to setting interest rates negative for the first time.

The Bank of England base rate of interest, which influences how cheaply banks can borrow money, what homeowners pay for their mortgage and how much savers earn on their savings, was held at its historic low of 0.1 per cent yesterday.

But experts are now warning a negative base rate looks plausible if the economy stalls in the face of soaring unemployment or a second wave of Covid.

If the Bank of England moved to push rates into the red, then commercial banks would have to pay to hold cash deposits with them, making it likely most if not all would pass on these costs to savers. 

On the flipside, those on variable rate mortgages that are linked to the base rate could see the unusual scenario of their bank technically obliged to pay them interest on their homeloans. 

In practice, however, history suggests that negative rates tend only to be passed on to savers, while mortgage borrowers see no benefit. 

In the aftermath of the credit crunch, this was the case for a small number of mortgage borrowers, who simply didn’t have to pay interest at all.  

The increasingly real prospect of negative rates will come as a further blow to the country’s hard-pressed savers, who have already had to endure a decade of low interest rates, and could soon see their savings eroded even further. 

The country's hard-pressed savers could soon see their savings eroded even further

The country's hard-pressed savers could soon see their savings eroded even further

 The country’s hard-pressed savers could soon see their savings eroded even further

Challenger bank Starling has already dropped its interest rates for personal account customers below zero this week, though only for those who hold high balances in euros.

This is because the European Central Bank has had a policy of negative interest rates since 2014 but cut rates from -0.4 per cent to -0.5 per cent last year.  

Kevin Brown, savings specialist at Scottish Friendly, said: ‘The prospect of the Bank of England coming to the rescue of the nation’s hard pressed savers remains a long way off, with today’s announcement possibly paving the way for negative interest rates in the coming months.

‘Although the steep drop in inflation in August means there is temporarily more choice for savers looking for inflation-beating returns, this period is likely to be short lived. 

‘The cash savings market in the UK is beyond repair while the prospects for the UK economy remain so uncertain.’

What would it mean for savers and borrowers?

The economy grew by 6.6 per cent in July, which experts said puts the economy on track for a double-digit bounce-back from recession.

But worries are mounting over mass unemployment and long-term economic scarring following the pandemic once Government support schemes end.  

If the economy starts shrinking again, in theory negative interest rates would stimulate more spending by encouraging banks to get money out of the door to businesses and consumers to spend, rather than save.  

Bank Governor Andrew Bailey said recently he expects the pandemic to permanently scar the economy by reducing GDP by 1.5 per cent

Bank Governor Andrew Bailey said recently he expects the pandemic to permanently scar the economy by reducing GDP by 1.5 per cent

Bank Governor Andrew Bailey said recently he expects the pandemic to permanently scar the economy by reducing GDP by 1.5 per cent

It may also mean borrowing – for example taking out a mortgage – will become cheaper.

Central banks in Denmark and Switzerland have already set interest rates below zero, with Denmark’s third-largest lender Jyske Bank hitting the headlines last year after launching a mortgage with a rate of -0.5 per cent, the world’s cheapest.

This meant the amount a borrower owed the bank reduced each month because it deducted rather than charged interest. It wasn’t free money though, as the bank still profited from fees and charges.

There is also no guarantee that all banks would pass on the benefit in the same way, and lenders are usually slow to pass on interest rate cuts to borrowers. 

They are also already operating on very slim margins and a further base rate cut would give them even less room for manoeuvre on pricing new mortgage products. 

Mortgage holders already on variable rates should mostly start saving money every time interest rates are cut. Whether UK lenders would follow Jyske Bank in launching negative mortgage rates remains to be seen.

The opposite is true for savers – banks could pass sub-zero interest rates onto customers by charging them to hold their deposits.

All nine members of the MPC voted to leave rates unchanged and keep its quantitative easing programme to boost the economy at £745billion

All nine members of the MPC voted to leave rates unchanged and keep its quantitative easing programme to boost the economy at £745billion

All nine members of the MPC voted to leave rates unchanged and keep its quantitative easing programme to boost the economy at £745billion

Rachel Winter of Killik & Co, said: ‘The rumours of negative interest rates continue to rumble on but, in welcome news for UK savers, they are yet to become a reality. 

‘However, there remains the prospect of significant job losses when the furlough scheme comes to end next month which will inevitably put further pressure on household finances, so the possibility of lower rates in future cannot be ruled out. 

‘As we have seen over the past decade, lower interest rates can have the effect of enticing more savers into the stock market as they seek to earn a return on their savings.’ 

While Britain’s biggest banks pay everyday savers as little as £1 on every £10,000 of savings already, costing them money in real terms after inflation, actually penalising them for holding their money would be unprecedented.

Inflation remained well below the Bank’s 2 per cent target in August – plunging to just 0.2 per cent – meaning there is no official case at the moment for an increase in rates. 

However, many believe the Bank of England could implement further action later this year, likely in the shape of more bond-buying in November or December to prevent the economic rebound from fizzling out.   

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