Prepayment meter households will no longer pay more on average for their energy than direct debit customers as the government scraps unfair charges.

Today, the government will eliminate the unjust fee imposed on prepayment meter customers, restoring household equity.

Effective immediately, the change will assist approximately three million British households with prepayment meters by bringing their bills in line with those who pay by direct debit, with the government covering the difference.

Currently, households with pay-as-you-go meters pay on average more than those with direct debit because it costs suppliers more to service their residences – such as collecting payments or issuing vouchers – and these costs are passed on to consumers.

By removing the prepayment meter premium, these households will save approximately £21 per year on their electricity bills, ensuring the system’s fairness and providing additional assistance to low-income consumers.

The elimination of the prepayment meter premium coincides with the implementation of Ofgem‘s latest price cap, which will reduce the average annual energy bill from £2,500 under the Energy Price Guarantee to approximately £2,074 due to wholesale market improvements. This will help reduce inflation, one of the five commitments made by the Prime Minister, as rising energy costs push up prices across the economy.

The decrease in energy bills will save the average household approximately £426, or 17%, and will result in consumers paying £83 for every £100 previously spent on energy bills.

Minister of Energy Consumers and Affordability Amanda Solloway stated: “No one should be charged more for having a prepayment meter; we are ending this historical injustice today. This is a crucial development, as households with prepayment meters typically have some of the lowest incomes.”

“In addition to the hundreds of pounds that will be deducted from energy bills as of today due to the reduction in the price limit, this will provide additional assistance to ensure that families are no longer unfairly punished.”

To ensure that the prepayment premium is eliminated as soon as feasible, the government will fund the transition until April 2024.

After that date, the energy regulator, Ofgem, will devise a plan to eradicate it permanently. Earlier this year, the government took measures to prevent energy suppliers from abusing prepayment meters. Energy Security Secretary Grant Shapps demanded action from Ofgem and suppliers to halt the improper installation of prepayment meters in vulnerable homes.

The government is adamant that moving customers to prepayment meters must be a last resort and has requested regular updates from Ofgem and consumer groups to ensure that all suppliers adhere to the regulator’s new Code of Practise – which includes safeguards to prevent prepayment meters from being installed in homes where they are not appropriate.

Last year, the government spent nearly £40 billion to help keep household and business energy bills low, the most ever provided to subsidise household bills in the history of the United Kingdom. During the winter, the government covered nearly half of the average household’s energy expenditure, resulting in a savings of approximately £1,500 by the end of June.

This included providing £650 million through the Energy Bills Support Scheme to households with traditional prepayment meters.

The initiative issued £400 worth of vouchers over six months beginning in October, with the most recent figures indicating that 85% had been redeemed by the end of May. Even though the application deadline has passed, this number is anticipated to increase with the final applications and will be reflected in summertime figures.