Millions of vulnerable UK households on prepayment meters could see their energy bills consume almost a third of their incomes this winter.
As temperatures drop across the country, the Resolution Foundation said a combination of higher gas and electricity prices and the typical seasonal increase in energy usage over the colder months would hit poorer families most.
The thinktank estimated that the 4m households with a prepayment meter would need to spend more than 30% of their income, after housing costs, on energy over December, January and February.
As prepayment gas and electricity meters are typically concentrated among low-income households, it said this drain on family finances would be “unsustainable, leading to a risk of families sitting in cold, dark homes”.
Households have come under renewed pressure from rising energy bills in recent months as events in Russia and the Middle East had led to fluctuations in energy prices on the wholesale market.
The energy regulator, Ofgem, said last month its price cap would increase by 1.2% from January in England, Scotland and Wales. For an average household paying by direct debit for dual fuel, this equates to an increase to £1,738 a year.
The cap, which limits the unit price of gas and electricity, will rise by 1% or £21 for the average household with a prepayment meter, to £1,690.
While the cap has been lowered this year after the surge in international markets that followed Russia’s full-scale invasion of Ukraine in 2022, it remains significantly higher than three years ago. Typical bills were just under £1,300 in late 2021.
The government has faced criticism after a decision to cut the winter fuel payment for all but the poorest pensioners, one of Labour’s first acts of power.
The Resolution Foundation said prepayment meters were most heavily concentrated among the poorest households in Britain, with a quarter of the poorest fifth of families paying for their energy this way, compared with just 1.5% for the richest.
These families are also more likely to live in rented homes and in properties with lower levels of energy efficiency, making them more expensive to keep warm during the winter months.
Given the typical seasonal demand for energy – and the fact that topping up a prepayment meter removed the ability to smooth out energy costs over the course of a year – it said these households would face a surge in winter costs.
The amount of energy required to maintain a reasonable standard of warmth and electricity use would, on average, be more than 30% of the incomes of households on prepayment meters in December, January and February – a figure that falls to about 12% during the summer.
Gas and electricity suppliers faced criticism during the energy crisis over the force-fitting of prepayment meters. They were temporarily banned from the practice for nearly a year.
Jonny Marshall, the principal economist at the Resolution Foundation, said: “For many households, the recent energy crisis is an episode they’re keen to forget. But for the million households on prepayment meters this winter, it will feel like the crisis never ended.
“Persistently high energy costs and heavy use during the cold winter months mean that households on prepayment meters are set to spend almost a third of their family budgets on energy during the next three months. These high costs can squeeze out other important spending and increase the risk of people rationing their energy use in a way that can harm their health.”
A spokesperson for the Department for Energy Security and Net Zero said: “We are doing everything we can to support vulnerable families this winter – including through the £150 warm home discount expected to support 3 million eligible households, while around 1.3 million households in England and Wales will continue to receive up to £300 in winter fuel payments.
“In November, Energy UK, in collaboration with the government, published a winter 2024 commitment which promises £500m of industry support to bill payers this winter. This includes credit on bills or prepayment meters, and enhanced debt write-off schemes and hardship funds.
“We welcome the steps already taken by Ofgem to protect prepayment meter customers, and we will continue to work closely with them to ensure that suppliers only install involuntary prepayment meters as a last resort – ensuring consumers can afford to pay for their energy.”
