Consumers in debt to energy suppliers by £624 million
Almost 5 million UK households (19%) are in debt to their energy suppliers, according to new research from uSwitch.com, the independent price comparison and switching service. The study shows that consumers now owe £126 on average, collectively racking up an estimated £624 million of debt to energy suppliers.
After two years of price cuts, the average amount owed to suppliers has fallen by 4.5% from last year (£132) to £126 today. But this is still 10.5% higher than in 2008 when the average debt was just £114. Worryingly, now that suppliers have increased their prices again by an average of 5.9% or £63, taking the typical household energy bill to £1,132 a year, energy debt is likely to rise again. The fact that bills today are 38% or £313 higher than in 2008, makes this even more certain.
Even though households benefitted from price cuts in 2009 and 2010, nearly four in ten (38%) say they're more in debt today compared to last year - just 14% say they owe less than last year.
Nearly a quarter of households in debt or arrears (23%) intend to pay it off by lump sum, while over four in ten (42%) plan to increase their direct debit. However, nearly a quarter (22%) won't be doing anything about their debt, hoping it will go down naturally over time.
For some, concern over their debt is getting too much, with one in ten (10%) considering agreeing a repayment plan with their supplier, a 2% increase on last year. However, there is some good news - just 2% of those in debt to suppliers are thinking of moving onto a prepayment meter (PPM), 3% less than last year. This drop is welcome as PPMs are a more expensive way of paying for energy than direct debit.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "Despite two years of price cuts almost two in ten households are in debt to energy suppliers - and now prices are going back up again. This is a real concern. The fact is that consumers were knocked for six by the 41% or £334 increase in energy prices in 2008 and have been struggling to find their feet ever since. With prices now increasing by an average of 5.9% or £63, that struggle is about to become a lot harder.
"Energy debt can be a catch-22. Despite knowing they could reduce their bills by moving to a cheaper energy plan, consumers can see debt as a barrier to switching. However, our research shows that while the average debt is £126, consumers could save up to £458 by switching. So while they may have to pay any outstanding debt to switch, by cutting the cost of their energy they could avoid falling back in to debt in the future.
"With households typically paying £1,132 a year for their energy, debt is symptomatic of the high cost of energy today. Households will have to adapt if they are to protect themselves and there are two key steps to this - make sure you are paying the lowest possible price for your energy and cut down on the amount of energy you use. Paying energy bills by direct debit will help reduce bills as suppliers offer valuable discounts for paying this way. Consumers should also make sure that they or their supplier are taking regular meter readings as relying on estimated bills can be a shortcut to debt. Anyone who is concerned about managing their energy bills should contact their supplier to discuss the options."