Tuesday, August 26, 2008

Action to Help with Energy Bills and add to the Post Office's Services

City Conservatives support proposals for helping less well-off families with their energy bills.

Parliamentary spokesman, Richard Normington, said:

“Many of the poorest households pay more for their energy and water bills because they do not have bank accounts and cannot pay by direct debit.

“A Conservative Government will reform Post Office Card Accounts so that they can be used for the first time to pay utility bills by direct debit.

“These plans will also bring in extra money for Post Offices, helping keep our network and stave off more Labour cuts.”

There are 8 million people in the UK who do not have a bank account or are effectively without a bank. Many of them use Card Accounts instead. However, because they cannot pay their bills by direct debit, they face higher prices for gas, electricity and water.

The aim is to reform Post Office Card Accounts so that families without bank accounts can benefit from the lower energy and water tariffs offered to customers paying by direct debit.

This could cut the energy bills of up to 4 million Post Office Card Account (POCA) holders by up to £100 a year.

1. How the policy will work.

The Post Office Card Account (POCA) is a basic cash account run by the Department for Work and Pensions, which can only receive welfare, state pension and tax credit deposits.

A Conservative Government will expand and widen the role of POCA, both enabling it to accept additional deposits – including housing benefit and any weekly wages – and create sub-accounts which can be used for direct debit payments on a full range of public and private sector bills, including utilities.

Based on evidence from industry, vulnerable customers ‘cost’ utility companies on average double the amount of non-vulnerable customers. This is because of higher collection costs.

The running costs of the additional functionality will be met in full by participating energy companies. A number of utility companies, including EDF, United Utilities and Water UK (the representative body for UK water companies) have endorsed this proposal.

2. Who will benefit

According to the latest Treasury figures, over 2 million people do not have access to a bank account (HM Treasury, Family Resources Survey, 23 July 2008). However, research by the social enterprise Saving for Poverty has shown that the figures for those who are unbanked or act as unbanked (because they withdraw all their cash on a week-by-week basis) is actually nearer to 8 million.

Not being able to pay bills by monthly direct debit adds a substantial penalty onto household bills – primarily because of the higher collection costs faced by energy companies dealing with unbanked customers.

Amongst the six main energy suppliers, direct debit customers save up to £80 a year over standard customers, and save £122 a year over pre-payment meter customers according to the latest available figures from Energywatch. These figures are even higher when compared to online direct debit payments.

Save the Children has estimated that the ‘poverty premium’ costs an average £1,000 per year. This figure includes fees arising from the use of non-mainstream credit lenders who can charge as much as 170 per cent interest.

Utility companies will use the cost savings generated through these customers paying through automated direct debit style processes – estimated by Saving for Poverty to be up to £800 million a year – to offer lower rates to these users, bringing them broadly into line with traditional direct debit customers. This equates to £100 per POCA customer.

3. Energy bills rising

Fuel prices have risen by an average 23 per cent since January 2008. The average family energy bill will now cost £1,126 (source: Uswitch website, August 2008).

Household energy bills may climb by 40 per cent by the end of the year, reflecting a 74 per cent increase in the price of wholesale gas from January (BBC News Online, 18 June 2008).

UK electricity prices, excluding taxes, are now the sixth highest in the EU 15, and 7.4% above the median price (BERR Select Committee report, Energy Prices, Fuel Poverty and Ofgem, August 2008).

The systematic rises across the domestic retail market has pushed an extra 600,000 people into fuel poverty since the start of the year. There are now 4.5 million fuel poor customers in the UK. Older people are more likely to be affected by fuel poverty than any other group. Age Concern has estimated there are now more than 2.25 million older households in fuel poverty in the UK.

4. Post Office Card Under Threat

The current Post Office Card Account contract ends in 2010. Gordon Brown’s Government is replacing it with a new contract (so-called ‘POCA2’), but due to EU rules, it has to put the new contract out to competitive tender. The National Federation of Sub-Postmasters has stated that 3,000 post offices will forced to close if the Post Office Ltd loses its contract for the Card Account. The Card Account is used by 4 million people each week to access pensions and benefits.

By contrast, under Conservative proposals, fees from utility companies for this POCA functionality are projected to generate £20 million in additional revenues for post offices each year. Post Office Ltd makes a saving of approximately £18,000 from the closure of each individual post office. The £20 million of additional revenues could therefore help to keep more post offices open and help suspend Labour’s programme of forced post office cuts.

26th August 2008

No comments:

Post a Comment