Under reforms announced today, Wednesday 15 March, there will be big changes for families using prepayment meters

Energy costs will be lowered for millions of households, in what's likely to be welcome news to many.

Chancellor Jeremy Hunt has said he will put an end to those on prepayment meters paying more for their gas and electricity than those paying bills by direct debit.

In Jeremy Hunt’s spring Budget, announced on 15 March, Mr Hunt removed the 'prepayment meter penalty', which will save more than 4 million homes about £45 per year.

The majority of those households who use prepayment meters are on low income or vulnerable, so this means it's those households who will benefit from this change.

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'It is clearly unfair that those on prepayment meters pay more than others'

Announcing the change, Jeremy Hunt described the existing higher costs of pay-as-you-go meters as 'unfair.'

He said: 'It is clearly unfair that those on prepayment meters pay more than others. We are going to put an end to that.'

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'Tax on some of our most vulnerable'

Energy security secretary, Grant Shapps, noted charging households using prepayment meters more was a 'tax on some of our most vulnerable.'

He continued: 'Our changes will make sure families aren’t penalised simply for how they heat their home.'

Why are pre-payment meters so expensive?

Households on the pay-as-you-go system are typically low-income families.

According to Citizens Advice, prepayment meters are generally more expensive than paying for your energy via direct debit as there are fewer tariffs and suppliers to choose from.

Citizens Advice says: 'You won’t find many energy tariffs on price comparison websites at the moment – this is because of changes in the energy industry.'

You’ll pay a daily fee

As well as paying for the gas and electricity you use, you pay a daily fee for being connected – known as a standing charge.

Citizens Advice said: 'You pay this with a normal meter too, but when you're on prepayment you need to have credit to pay it – even on days when you don’t use any gas or electricity.

'You still have to pay the daily standing charge even if you don't have any credit on your meter. When you next top up, you'll have to pay back all the standing charges that you owe.

'The amount of the standing charge depends on where you live and what tariff and supplier you have.'

When will the new change come into effect?

The change is due to come into effect in July.

The Treasury estimates the change will cost the taxpayer £200 million.

How will the changes be made?

The reduction will be managed through changes to the government's energy price guarantee and Ofgem will be asked for ways the change can become permanent once this ends in April 2024.

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Where to get support

Head to our Cost of Living hub for details on the benefits and entitlements you could be eligible for.

Plus, here's when all your benefits, including Universal Credit, will be paid over Easter .

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