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The payment penalty

UK energy customers are now charged up to £254 extra if they don’t pay by direct debit
Senior woman holding smart meter by radiator during cost of living crisis

Octopus Energy, the UK’s third-largest energy supplier, is calling on Ofgem to end payment penalties sooner for standard credit customers, after it confirmed that it wouldn’t make changes until 2024/25. 

The company has released evidence showing that three-quarters of customers (75%) who pay by cash, cheque or card for their energy don’t realise they are being charged much more than customers who pay by direct debit. 

The research also shows that this charge disproportionately affects older people. Almost a third (28%) of people – the largest cohort – who pay via cheque or cash are over 65.

Paying £20 per month extra

Non-direct debit payment methods do incur additional costs to energy suppliers. When the energy regulator Ofgem introduced the energy price cap in 2019, it calculated that this extra cost was £81.

This premium has ballooned in line with soaring energy costs – energy suppliers are now allowed to charge a typical customer £254 a year for not paying by direct debit.

This means that customers who pay by cash, cheque or card are paying more than £20 a month extra for their energy compared with those who pay by direct debit.

With around 5 million electricity customers affected, this means British households could be paying around £1.3 billion a year more than they need to. 

‘Sinister, hidden costs’

The scale of the issue is huge – the surcharge is almost double the social and environmental levies which the government announced they would remove from bills to help tackle the cost of energy.

This is an extra burden on low-income and elderly households – and many don’t even know they’re paying it. Yet these are exactly the groups of people Ofgem’s energy price cap aims to protect.

‘Whilst the global gas crisis is beyond the control of the UK, Ofgem need to do all in their power to drive down the sinister, hidden costs creeping up on pensioners. Committing to review it only by the winter of 2024/25 is simply not soon enough.

‘Suppliers do incur extra costs for other payment methods, but this surcharge has got out of hand and we’re asking Ofgem to review it as a matter of urgency – especially with the price cap rising again in April. 

‘It’s all the more pernicious for people who pay carefully on time, every time and think this gets them a fair deal. In reality they’re being gouged – and this practice must be stopped.’

CEO and founder of Octopus Energy

Avoid unnecessary charges

Octopus Energy is pushing back on this inflation, calling on Ofgem to slash this uplift as soon as possible.

It is also urging everyone who pays by receipt of bill or standard credit to move to direct debit if they can to avoid unnecessary charges. 

Despite the rise in cap, Octopus Energy chose to not pass on this surcharge to customers until October 2022, when it raised it to £80 per customer to cover the additional cost.

Absorbing these costs on behalf of its customers has cost Octopus Energy £46 million since 2019.

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