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Labour Vows To End "Morally Wrong" Higher Rates On Pre-Payment Energy Bills

Labour Vows To End 'Morally Wrong' Higher Rates On Pre-Payment Energy Bills

Rachel Reeves is interviewed outside the BBC in June (Alamy)

3 min read

Labour has pledged to end households with pre-payment meters having to pay a higher rate than direct debit customers, in the first of several cost-of-living policies that the opposition will roll out in the coming days.

Leader Keir Starmer has been under growing pressure to set out how the party would tackle the worsening cost-of-living crisis, with the latest forecasts showing the energy cap rising well above £4,000 in early next year.

The Bank of England's recent prediction that the UK will soon enter a 15-month recess, and see inflation hit 13% in 2022, has also served to bring the crisis into sharper focus.

Prime Minister Boris Johnson has faced widespread calls to take emergency steps now.

However, 10 Downing Street has insisted this week that it is for his successor, either Liz Truss or Rishi Sunak, to make major fiscal interventions when they replace him in early September.

Shadow Chancellor Rachel Reeves said on Thursday that a Labour government would end the "unjustifiable and morally wrong" higher energy prices facing people on pre-payment meters, compared to those who pay their bills through direct debit.

Labour would reimburse energy companies for the difference this winter, which it estimates would cost around £113m between October and March.

The party says it would do this by using money raised through fixing holes in the windfall tax – or what ministers call the Energy Profits Levy – which was introduced earlier this year.

Around 4m people currently use pre-payment meters, according to Ofgem, and the price cap for those customers is around 2% higher than those using direct debit. 

Labour estimates that based on the current forecasts, pre-payment customers will pay £84 more for their energy than those on direct debit in the final three months of this year, and £100 more in the first three months of 2023.

Pre-payment customers are also much more likely to be in low-income households. Nearly a third of those who use pre-payment meters are fuel poor, compared to 11% of direct debit users, according to the most recent government figures.

“It’s outrageous that people on prepayment meters have to pay more for their energy. Why should those with the least have to pay more to heat their homes and put the lights on?", Reeves said.

"This is unjustifiable and morally wrong. As energy prices spiral, this unfair prepayment premium must end. Labour would make sure that no one pays over the odds for the same gas and electricity that everyone else gets, as well as taking broader action to help people manage their bills over the winter. 

“We’re in the midst of an energy emergency that is only going to get worse. A crisis like this requires strong leadership, but instead the Conservatives have lost control of the economy and have nothing to offer. They need to get a grip and take urgent action.  

“Labour will take the action that’s needed to get us through this national emergency, and build the stronger, more secure economy Britain deserves."

As PoliticsHome reported on Wednesday, this announcement is one of the several that Labour will make in the coming days as it unveils its cost-of-living policies, which is the work of Reeves, Starmer and shadow climate change secretary Ed Miliband.

Senior Labour sources told PoliticsHome that Labour leader Starmer was set to deliver a speech on the policies early next week, but it is now unclear whether that will be part of the rollout.

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