Consultation announcement on Ofgem’s website

Published on 21st December 2023

Ofgem has put a proposal out to consultation until January 24th 2024 to permit a supplement to energy prices to compensate suppliers for customers’ bad debts. This will be the first widespread example of differential pricing based on a customer’s financial resources: good payers on metered supply will be surcharged to protect bad payers on metered supply, and those on prepayment meters are exempted.

Anyone who pays their energy bills in full and on time must respond in the most robust and negative terms to Ofgem’s consultation under the heading ‘Energy price cap: additional debt costs review consultation’:

The supporting mindset is that those with adequate financial resources should pay a higher price for basic goods and services than those that use the same goods and services and cannot or do not pay for them.

This is a very slippery slope and the proposal should be stopped dead in its tracks before we slide into a neo-Marxist economic model, in which financial resources flow inexorably ‘to each according to their needs’ (self-certified needs, of course), conveniently dropping the ‘from each according to their ability’, as that might cause people to toil who do not wish to, and to leave the house to labour, when they prefer to seek for rest at home.

The consultation seeks views, by 24th January 2024, on its proposal to make metered consumers of energy pay more to assist energy companies with the costs they have incurred by selling product to other customers who do not pay in full, or on time, or either.

Those who use pre-payment meters are exempted, on the assumption that they are on lower incomes and cannot afford this latest price hike. Metered consumers can thank the Fairness Lobby for this dispensation in favour of these other consumers of the same product.

Dispensations will now, according to the proposal, be extended to metered consumers in payment difficulties, to the detriment of metered consumers who pay for what they use. They will end up subsidizing both of these other constituencies of users of the identical product.

This will be done by Ofgem adding a temporary allowance in the energy price cap for additional bad debt-related costs: in other words the cap goes up by this amount and so does the price. The increase is £16 – equivalent to around £1.33 a month – to be added to bills from April 2024 until March 2025.

This increase will come on top of any increases in the price-per-unit as well as those for standing charges: the latter have already risen well in excess of Consumer Price Inflation from about 2p per day each for gas and electricity in 2014 to 29p per day for gas and 50p per day for electricity now.

But it is not so much the quantum of the increase that must be objectionable to paying metered consumers, but the wrong-headed principles behind it.

Firstly, energy suppliers and their shareholders must apparently be protected from the impact of their supplying customers who do not pay. Non-payment for goods and services is an entrepreneurial risk, so losses in this area must be for the account of the supplier and its shareholders. If they aren’t, then we are into ‘heads I win, tails you lose’: good debts are banked by the supplier, bad debts are thrown back on the subset of customers who are solvent.

Secondly, the impact of the proposal is a wealth transfer to the detriment of metered consumers who pay in full and on time, and is tantamount to yet another extension of the Welfare State (as if it needed further extension) but with one big difference.

At least in principle a consumer, who is a voter, has an option through the ballot box to determine the size of the Welfare State. Of course that principle has been eroded by there being scarcely a cigarette paper’s width between the stances of the major parties on the need for an expanding Welfare State, the result being a continuous increase in its size and more and more of voters’ money being at the disposal of our elected representative to spend.

This proposal crosses a Rubicon, though: we have a quango (Quasi-Autonomous National Government Organization) in the shape of Ofgem being able to make proposals that amount to tax increases, but outside the control of the voters who will be made to pay.

That is anti-democratic and for that reason alone the proposal will should be soundly rejected by all those with an interest in democratic government. Should it not be, then the way is open for other areas to begin to charge differential pricing dependent upon the income level of the customer.

In due course, if payment is possible via a Digital Pound controlled by another quango – the Bank of England – then each purchase can become eligible for cashback dependent upon the customer’s income level, reducing the net price to that customer. That would be a neat way of implementing the principle across the piece, with every customer paying a different net price for the same thing. The cashback will be in the form of a top-up to the customer’s Digital Pound account, and the level of cashback can be determined from the digital tax records of HM Revenue and Customs on the customer’s income and other financial resources. The cashback becomes an additional Welfare Payment.

This is the direction-of-travel of the nexus of quangos and government entities and it has been set mainly by lobbying and activism, in this case by the Fairness Lobby who have established the Poverty Premium as an accepted concept, namely that people on lower incomes supposedly pay more for everything, even if they don’t. Now, to eliminate the illusory Poverty Premium, we will have the Solvency Premium: those able to pay will be compelled to pay more for everything instead.

Those who disagree with this direction-of-travel must respond to Ofgem’s consultation and robustly reject this first widespread incidence of differential pricing based on income and financial resources.