Talking point 1
The gig economy and universal credit are driving up debt
Austerity, the introduction of universal credit, the gig economy and gambling are all adding to lack of affordability in households and making it harder for people to pay their bills, speakers at Utility Week Consumer Debt Conference said.
Opening speaker, Mark Wilkinson, head of income at Northumbrian Water, picked out key statistics from the recent Joseph Rowntree Foundation UK Poverty 2019/20 report, which showed that one in five – 14 million people – in the UK are living in poverty. In-work poverty is also growing. Around 56 per cent of people in poverty are in a working family, compared with 39 per cent 20 years ago, he told delegates at the event at the National Conference Centre in Birmingham.
Northumbrian’s Mark Wilkinson also drew on analysis by debt charity StepChange, whose yearbook of information about its clients and their debts shows that in the past two years electricity arrears have started to grow.
“We’re having more conversations with customers about struggling to pay bills. That’s one of the very first conversations we have,” said Wilkinson. “Citizens Advice released a report which said 38 per cent of its clients present with a negative budget.”
Chris Thewlis, chief operating officer of Npower (soon to be absorbed into its new parent company, Eon), also pointed to sobering statistics from Citizens Advice: “8.3 million people across the UK are recognised as being in debt and 22 per cent of adults have less than £100 in savings, which makes them vulnerable to changes. If you’re on a zero-hours contract and you have less than £100, that’s going to be a problem.
“We’ve definitely seen a problem with universal credit,” he added. “Going from weekly to monthly benefits payments is a big hump in the road. The original levels of universal credit have dropped, so even if you are receiving it you can still be in quite difficult circumstances. It’s definitely had an impact on us.”
Thewlis continued: “The other issue is betting, which is everywhere. So, there’s definitely a move into a more difficult situation, and poverty hasn’t necessarily changed, but affordability has become a really big issue.”
The situation is unlikely to improve any time soon, according to Deven Ghelani, director and founder of Policy in Practice, who said austerity had meant benefits had fallen by 6 per cent since 2013 and households are on average £40 a week worse off. The “two-child limit” means larger families will struggle as £4.4 billion in further cuts bite and Brexit will hit low-income households hardest.
Dennis Berg, senior manager, consumer policy at Ofgem, said about 1.3 million electricity accounts are in debt, and about 1 million in gas.
“We’ll keep pushing suppliers to make sure they have good debt management in place , and introduce stricter rules probably to try and drive that improvement,” he said.
Talking point 2
Utilities need to think about debt and payment more holistically
Andrew White, senior policy manager at the Consumer Council, urged utility firms to help their customers deal with debt in a more holistic way. He said they should have arrangements with debt advice agencies in order for them to look at the full picture of the customer and help them in all areas. “This creates a more sustainable position going forward, which benefits all utilities, and the customer,” he said.
They also need to be more approachable, added White. “About a quarter of water customers say they wouldn’t contact their water company if they were struggling to pay their bill. So, we need companies to reframe the relationship with their customers, to be seen as someone who can offer help.”
Wilkinson said Northumbrian Water was taking this approach: “We’ve seen a change in visits – we used to do lots of debt recovery visits, now we go out and talk to people about how we can help them.”
He said Northumbrian had funded a social tariff scheme itself, which has been operating successfully for five years: “We’re generally having to work hard with payment arrangements because people’s budgets are so tight. We’re still having lots of repeat conversations, lots of renegotiations of payments, payment holidays and those sorts of things.
“What’s changed is we used to have to chase people to talk to them about why they missed a payment. Now if we’ve got someone on a payment arrangement that’s a massive difference to us, because we’re not spending all that extra money chasing someone who hasn’t paid.”
Wilkinson added: “We’ve also seen a real change in court activity. The court claim itself is becoming less effective. You only go to court if you’re absolutely sure the customer can afford to pay. So those numbers are trending downwards, but the collection rates are trending up. That’s a pattern we’ve seen over the past five or six years.”
Utility firms, however, need to better promote the help they can offer. White remarked of water companies: “They’re doing lots of good work, they’ve got lots of schemes to offer, but customers are not aware of them. Our research suggests only about 5 per cent of customers across England and Wales are aware of the social tariff schemes.”
Talking point 3
Remote switching to prepayment is a major issue
Remote switching, whereby consumers are switched from credit to prepayment via smart meters, was flagged up as a concern by Ofgem’s Dennis Berg. “In 2017, we had about 21,000 people being remotely switched; by 2018 it was about 70,000.
“There are two problems with this. One is that it’s much easier for suppliers to move to prepayment, and there’s a big risk that suppliers don’t check whether prepayment is suitable for a customer – someone with medical equipment, for example.
“The second is that while we’ve seen disconnections come down over the past 15 years, we’re seeing a shift towards more self-disconnection. If there’s an increase in remote switching with more people being put on prepayment, you’re shifting that problem to the consumer, which is great for managing money, but can be detrimental for consumers who can’t afford to top up their gas meter or heat their home adequately,” Berg added.
Martyn Cladingbowl, head of debt at Ecotricity, said the situation had been brought home to him recently during a talk he gave at a school, which touched on the subject of prepayment. “Hearing kids talking about not having TV or not being able to have a hot shower – that’s when it hit me that there are real circumstances out there affecting our consumers, and they are self-disconnecting, and they are going without energy and hot water.”
Berg added: “We’re working on changes to the licence to make it easier for consumers to get additional credit when they are self-disconnecting. We’re thinking of mandating that across the sector to make sure every single consumer will get that additional service in their hour of need.
“On the other end, you have to try to mitigate some of the costs that people will have for their energy bills, and that’s where we’re trying to work with price caps.”
Deven Ghelani asked why those on prepayment couldn’t be offered a discount, given they were paying for energy in advance. “Because then you’re shifting the behaviour towards staying connected, staying topped up,” he said.
Cladingbowl responded that it was because the cost to serve pay-as-you-go customers has historically been higher, but the rollout of smart metering should solve that.
Talking point 4
Payment flexibility needed to help those on zero-hour contracts
All panels in the first session agreed that zero-hour contracts were taking their toll on income, together with the uncertainty of Brexit. Mark Wilkinson of Northumbrian Water highlighted the need to consider flexible payment options in the light of income no longer being fixed.
“We’re potentially treating people as though they have fallen into debt, when really they’re just managing their finances in a different way with zero-hour contracts,” he said. “One of the real challenges for us as a water utility is a lot of our historic processes are based on fixed incomes and payments, and you’d typically end up in a debt recovery situation if you missed an instalment.
“A lot of people want to do transactions online now, but building the para¬meters for doing that online is quite difficult. Then picking out when someone is falling into debt within that, rather than just being in a normal timeframe… so we’re offering that much more on a face-to-face basis, rather than online.”
Talking point 5
How can costs for vulnerable customers be shared more evenly?
The line that the legacy companies were servicing the lion’s share of vulnerable customers was raised by Npower’s chief operating officer, Chris Thewlis, who said the big six’s costs to serve are often used as an example of how inefficient the industry is because they are higher than those of the challenger brands.
“But if you take my internet-savvy, never in debt, paying by direct debit customers, I have pretty much the same cost to serve. The cost to serve of all the legacy customers is where the real cost comes, because we do have a social responsibility to make sure energy is available, and solutions are available,” Thewlis said.
“Prior to the price cap, while you had people that were prepared to pay standard variable tariffs, you had people who were paying more than the lowest price in the market, but what that in effect did was subsidise some costs that were then being used to support the more vulnerable end of the market, the more difficult end.
“We write off in the region of £15 million to £20 million/year in unpaid energy. We call it a ‘free energy fund.’ Speaking to one of the new suppliers, I asked them how much free energy they write off a year, and they had no idea what I was talking about.
“So, the old rules allowed you to set prices that allowed you to subsidise some of those costs, to solve some of the wider problems. I genuinely think now that the price cap has just generated a problem for that dynamic.
“Taking my company for an example, we were just about to get back to profitability when the price cap came in and took £200 million off our top line – there’s nowhere to go with that, which is why we’re now owned by Eon and will eventually close.”
A strong sentiment in the room was for a centralised way of sharing the costs to serve for vulnerable customers.
The Consumer Council’s Andrew White said: “An interesting parallel with water is the geographical basis of the water companies, and the different demographics of the customers in those regions, and then also the funding that those customers have been willing to agree to, in terms of contributing to social tariff funding. So again, there you could advance an argument for a common fund across the country to try to iron out some of those inequalities.”