Ofgem says you shouldn’t cancel the direct debit to your energy supplier.
This is in response to the Don’t Pay UK campaign, which is suggesting supporters cancel their energy direct debits on October 1st:
It’s simple: we are demanding a reduction of energy bills to an affordable level. Our leverage is that we will gather a million people to pledge not to pay if the government goes ahead with another massive hike on October 1st…
Even if a fraction of those of us who are paying by direct debit stop our payments, it will be enough to put energy companies in serious trouble, and they know this. We want to bring them to the table and force them to end this crisis.
So it’s unsurprising that Ofgem don’t like the idea…
Ofgem CEO Jonathan Brearley says cancelling your DD will drive up costs for everybody. It sounds like he’s mainly worried about costs for energy suppliers, not for customers. Even if a few more energy firms go under, that’s going to take a long while to filter through into higher bills.
He also says it will impact you personally. I have written about this in detail here Should you cancel your direct debit if you can’t pay your energy bill?
Yes, it will affect you, and you should know about this.
But if you can’t afford to pay the direct debit now, or when it goes up a lot in October, what options do you have that will be better for you? Today’s news is that the typical energy bill may rise to £4,266 in January – that would be a direct debit of more than £350 a month.
Let’s look at what Ofgem is suggesting.
“Ask your supplier for support”
We are working round the clock to make sure consumers pay no more than is necessary and are supported by suppliers in any way possible.
But “Pay no more than is necessary” doesn’t actually mean what you pay can be reduced. It means the supplier will try their best to get your bills accurate, not decrease them.
“In any way possible” doesn’t mean that at all. It just means in any way that won’t cost the energy suppliers much.
Some suppliers will have small ways to help all their customers – Octopus may be offering half-price electric blankets this autumn. Perhaps other suppliers will send you some warm socks or a free energy-saving bulb. But if your direct debit is a couple of hundred pounds more than you can afford, this sort of support isn’t going to solve the real problem.
There is some other help available from suppliers. You can get a small amount of emergency credit if you have a prepayment meter. If you have a very low income and arrears, most large suppliers have a hardship fund that can help.
But this extra help is very limited. It won’t stretch to cover the millions who are going to need a lot of help in October.
“Payment plans you can afford”
Our rules mean suppliers must offer payment plans you can afford.
That sounds like it could be just what you need, doesn’t it!
But these payment plans are plans to repay arrears. You are expected to pay the normal bill plus an amount towards the arrears. Because it is helping with the arrears, you have to have already missed payments to benefit.
The payment plans won’t reduce your ongoing bills to an amount you can afford.
“Get government support, charitable help or grants”
The government is providing extra help for people on benefits this year. Everyone, on benefits or not, will get £400 off their winter electricity bill. But this help was set up in May when the October price increases were expected to be much smaller, so it is now looking completely inadequate.
Some energy suppliers offer schemes. And there may be other help available from charities. But this is very limited. If you don’t get any means-tested benefits you may not be eligible for any grants or help.
“Get debt advice”
Some people will benefit from debt advice. But there is no way millions of people can access debt advice this winter.
And even for those that do get an appointment, debt advice isn’t a magic wand.
Citizens Advice data tracks the way energy problems are ballooning this year. At the end of June, it had already seen more people asking for help with energy issues than in the whole of either 2020 and 2019. It says:
We’re seeing a truly unprecedented number of people who can’t afford to top up their prepayment energy meter, and therefore can’t do the basics like turning on their fridge or heating their hob.
At the moment, 46% of Citizens Advice debt clients do not have enough income to pay all their priority bills and debts, even if they pay nothing to credit cards and unsecured loans. That number will get much worse with the energy bills rises in October.
If you have no chance of repaying your debts, a debt adviser can help with insolvency such as a Debt Relief Order. That will clear energy bill arrears. But it won’t help you pay the next month’s impossibly large energy bill.
Perhaps you could pay the energy bill if you stop paying your credit cards or unsecured loan? Then you won’t get missed payments on your energy account harming your credit record. But your credit record will still be wrecked with missed payments or payment arrangements for your other debts.
As one debt adviser said:
energy firms have long used debt advice referrals as a way of washing their hands of their poorest customers, as though “doing a budget” can solve the problems of depressed incomes and overpriced energy. In the current climate it’s unsustainable.
Debt advice can help individuals through hard times. It is not the answer for the whole country when a very large percentage of households have energy bills they can’t pay.
Ofgem hasn’t suggested anything that will be widely useful
Ofgem has no practical help for the millions facing an energy bill crisis this winter.
Apart from help from the government, the help available is small scale and will be limited to people on very low incomes. Or confined to help with arrears – so to get that help you need to have stopped paying the energy bills.
Not paying an energy bill is likely to harm your credit record. But if you cannot afford to pay it, what alternative do you have that will protect your credit record? Most people do not have enough savings to let them cover a couple of months of the coming high bills.
Ofgem’s suggestions sound much better than they actually are. Good for getting quotes in newspapers but not useful for people who are feeling desperate about what will happen this winter.