From 1 July 2023, prepayment customers should no longer pay more than people who pay by Direct Debit, under legislation introduced by the government in 2023 to end the so-called prepayment penalty1. The change is estimated to save affected households an average of £45 a year1.
Around four million homes have prepayment meters fitted, according to the British Gas Energy Trust1. Prepayment customers pay in advance before using energy, topping up cards or keys at shops with PayPoint or Payzone functionality, and at most Post Offices1. Standing charges still apply daily, so credit is drawn down even on days when no gas or electricity is used1.
The penalty had a long history. Prepayment meters were historically more expensive than other payment methods, and prepayment tariffs were usually not as competitively priced as standard ones1. Utility Warehouse states that before 1 July 2023 a prepayment meter was more expensive on average than paying by Direct Debit2.
The mechanism of the change was a reduction in prepayment standing charges rather than unit rates. Good Energy states that the standing charge reduction was put in place in July 2023, with the cost met by the government up until March 20243. From April 2024, the cost of lowering prepayment standing charges is met by spreading it over the bills of other customers, which Good Energy says means a slight increase in standing charges paid by Direct Debit customers3. Good Energy also states that from April 2024 increases to standing charges are expected to add on average £43 to an annual energy bill, while combined with reductions in unit rates most people will see bills going down3.
"From 1 July 2023, prepayment customers should no longer be paying more than people who pay by Direct Debit. It's estimated this will save people an average of £45 a year."
Separately, Ofgem announced in April 2023 that all British domestic energy suppliers had signed up to an updated Code of Practice and tougher oversight of prepayment meters installed under warrant or switched remotely without consent, described as involuntary installations1.
| Item | Detail |
|---|---|
| Change effective | 1 July 20231 |
| Estimated average saving | £45 a year1 |
| Homes with prepayment meters | Around four million1 |
| Prepayment standing charge reduction funded by government | July 2023 to March 20243 |
| Funding from April 2024 | Spread over other customers' bills3 |
Why it matters for households
For a household on a prepayment meter, the removal of the price penalty means the cost of a unit of energy and the daily standing charge should match what a Direct Debit customer pays, rather than carrying a premium for the payment method. That changes the arithmetic of prepayment versus direct debit for homes that use a meter to budget week by week.
The saving is delivered through the standing charge, not the unit rate, so it shows up as a lower daily fixed cost rather than a lower price per kilowatt hour3. Because standing charges are deducted from meter credit daily, including days when nothing is used, the reduction affects every day of the year, not only days when energy is consumed1. The price cap rates by payment method set out how the different payment routes compare.
The funding arrangement matters for households on both payment methods. Good Energy states that from April 2024 the cost of the prepayment standing charge reduction is recovered through other customers' bills, meaning a slight rise in Direct Debit standing charges3. The same source states that from April 2024 standing charge increases are expected to add on average £43 a year to an annual energy bill, offset for most people by unit rate reductions3.
Prepayment meters carry practical features that affect energy independence regardless of price. Smart meters have a £10 Emergency Credit, while non-smart prepayment meters have £10 to £20, and some meters offer Friendly Credit at times when shops are shut2. Debt can accrue through Emergency Credit use, missed standing charge payments or missed debt repayments, and can be checked on the meter's screens2. The prepayment and vulnerable customer rules cover the protections around involuntary installation.
What happens next
The government funding for the prepayment standing charge reduction ran to March 2024, after which the cost is spread across other customers' bills3. Good Energy states that small amounts from failed supplier costs will still be recovered through bills throughout 20243. No further dated steps on prepayment pricing have been reported in these sources.
Sources3 cited
- Prepayment Meter | British Gas Prepayment Meter | Energy Costs UK, britishgasenergytrust.org.uk
- Smart Prepayment Meter - Pay As You Go | UW, uw.co.uk
- What are standing charges? | Good Energy, goodenergy.co.uk