According to analysis conducted by Octopus Energy, UK energy customers are being charged up to £254 extra annually for not using direct debit when paying energy bills. This is more than three times the cost of what it was in April 2021 when the figure stood at £84.
75% of energy customers paying by cash, cheque or card also do not realise they are being charged more than those on direct debit, the energy supplier said whilst also calling on Ofgem to end payment penalties sooner than the proposed 2024/25 date.
On current valuations, customers not paying by direct debit pay around £20 extra on energy bills a month. Octopus stated that with around 5 million electricity customers affected, this means British households could be paying around £1.3 billion a year more than they need to.
Payment issues continue to be a discussion point in the UK energy industry with many voicing concerns over forced prepayment meters being installed in vulnerable household homes. With this, Ofgem threatened legal action.
Paying extra on energy is a particular concern amongst vulnerable customers especially amid the cost of living crisis when many households are already having to make drastic cuts.
Many that traditionally use other means to pay for energy bills, such as via cash or cheque, are pensioners, with the firm’s analysis indicating that almost a third of them (around 28%) had been using this method to pay for energy.
The surcharge is almost double the social and environmental levies which the government announced they would remove from bills to help tackle the cost of energy. Because of this, Octopus is now calling on energy regulator Ofgem to slash the uplift in costs to protect customers. Octopus also has expressed to customers the need to sign up for direct debit.
“Whilst the global gas crisis is beyond the control of the UK, Ofgem need to do all in their power to drive down the sinister, hidden costs creeping up on pensioners. Committing to review it only by the winter of 2024/25 is simply not soon enough,” said Greg Jackson, CEO and founder of Octopus Energy.
“Suppliers do incur extra costs for other payment methods, but this surcharge has got out of hand and we’re asking Ofgem to review it as a matter of urgency – especially with the price cap rising again in April.
“It’s all the more pernicious for people who pay carefully on time, every time and think this gets them a fair deal. In reality they’re being gouged – and this practice must be stopped.”
This is not the first time Ofgem has been called upon to do more to support vulnerable customers. In August 2022, the Good Law Project threatened Ofgem with court action should it fail to comply with its legal duties to protect vulnerable customers prior to plans to raise the energy price cap.
This was another blow to the energy regulator, which was previously deemed “incompetent as the regulatory authority” according to a report from the Department of Business, Energy and Industrial Strategy select committee.
