Ofgem is being urged to act quickly to stem the flow of consumers ditching direct debits and opting to pay energy bills by cash or cheque instead. New data f r o m uSwitch.com, the independent price comparison and switching service, shows a 7.3% drop in the number of switchers paying by fixed monthly direct debit, falling f r o m 92% a year ago to 85.3% today. Across the market it could mean 342,000 households less a year taking up the option and losing out on discounts totalling £33.5 million as a result.
According to Ofgem, over 40% of customers pay their energy bills by direct debit. Not only is this payment method convenient, but it is cheaper too as suppliers give discounts to customers paying in this way. These amount to £98 a year on average. The impact on household bills is noticeable – while the average household energy bill for a customer on a standard plan paying by cash or cheque is £1,239, this drops to £1,141 on average for those paying by direct debit.
More importantly, paying by direct debit is the gateway to suppliers’ cheapest tariffs – these can be found on their online energy plans. To get them, consumers need to pay by direct debit. The average household energy bill for an online customer is £1,021 – £218 cheaper than for a customer on a standard plan paying by cash or cheque.
But despite the cost implications, consumers are starting to shun direct debits. According to uSwitch.com this stems back to last year’s 42% or £381 price hikes which only hit many direct debit customers this year. Almost a third (30%) only had their direct debits increased in the first three months of this year – even though the price increases happened last year. As a result, many were playing catch up to make up for months of under paying and so were shocked when their supplier advised them how much their direct debit had to be adjusted by to compensate.
Not surprisingly, when advised of increases to direct debits a third of people (33%) felt compelled to contact their supplier. Following this 4% cancelled their direct debit even though this would increase the cost of their energy. And they’re not alone – according to the new data there has also been a 217% increase in people choosing prepayment meters (up f r o m 0.6% to 1.9%) and a 106% increase in people choosing variable direct debits – up f r o m 1.6% to 3.3%. In total, these shifts in payment methods could see 351,900 households paying more for their energy than they need to this year.
“Paying by direct debit opens the path to the cheapest energy prices in the market – this is not something to give up without a fight. If you are worried about the amount you are paying, contact your supplier to find out whether the monthly payment can be lowered. Make sure you are paying the lowest possible price for your energy by shopping around, cut down on the amount of energy you use and make sure you or your supplier is taking regular meter readings. Above all, be aware that coming off fixed monthly direct debit and paying by cash, cheque or variable direct debit will cost you money. This should always be a last resort.”