Energy: the war on debt

By Richard North - August 23, 2022

The iNews online newspaper ran a piece yesterday headed: “Fears of a winter debt crisis with 1.7m poised to cancel direct debits to energy companies”.

The sub-head then has the Consumers Association (Which?) and the Citizens Advice Bureau calling for new Government help – and warning that consumers who make rash decisions could damage their credit ratings.

The “1.7 million households” figure comes from a poll carried out BMG research. In terms of detail, the research finds that around one-in-seven energy users who pay via direct debit have either already decided (4 percent) or are likely to (10 percent) cancel their payments.

It seems that younger people, specifically 18–34-year-olds, are most inclined to stop payments, while those with a household income of less than £15,000 are more likely to say they have definitely decided to cancel their direct debit. This, the paper observes, may be through necessity rather than choice.

Needless to say, the “Uncle Tom” consumer organisations are on the case. Rocio Concha, Which? director of policy and advocacy, warned that rash decisions now could harm households financially for a long time as she called for “targeted support” for an “ever-growing number of consumers”.

“If consumers decide to stop paying their energy bills, it could have a serious impact on their financial situation, affecting their credit rating and potentially making it harder to take out loans, credit cards or mortgages in the future”, she says.

Never one to miss the opportunity to push the establishment line, she adds: “These customers would also be moved from monthly direct debits to more expensive payment options, such as pre-payment plans, adding extra costs to their bills”. Thus, she says: “We would strongly encourage anyone struggling to afford their bills to speak to their energy company”.

On the other hand, Concha urges energy companies “to do everything they can to help customers and not chase them for debts they can’t pay”, things that are unlikely to happen.

As readers will know, communicating with my supplier, EDF, is precisely what I have done, with unhelpful results as they swept aside my complaint and warned me to expect a new bill on 6 September.

As it turns out, though, the cash-strapped energy supplier couldn’t wait that long. In yesterday’s post I received a new bill, dated 17 August, only two days after the egregious Arpan Ganguli had “closed” my complaint.

And while Citizens Advice Bureau is urging bill-payers who are unable to keep up with payments to speak to their energy suppliers, “as they may be able to offer emergency credit or a more affordable payment plan”, EDF’s response is to demand £244.27 for a period covering the ten days from 4-13 August.

The way they work out this extortionate figure is by adding the amount they’ve driven my previous direct debit account into debit with their inflated charges, soaking up the best part of £300 credit which is normal for the account at this time of year, leaving a debt of £204.20.

That, interestingly, is something none of “Uncle Toms” picked up, but it is going to affect a lot of people who stop their direct debit payments. Many of them, who would normally expect to be in credit with their suppliers at this time of the year, will already have been driven into debt by the increased charges. And, from the look of it, the suppliers’ response will be to demand immediate repayment.

This is exactly the sort of predatory behaviour we expect from the energy suppliers who, on the one hand, will be shedding crocodile tears to the media about the plight of their hard-pressed customers while, on the other, will be squeezing every penny they can get from them.

As to the canard about cancelling direct debits affecting credit rating, this idea has already been scorned by the “Don’t Pay” campaign as “ridiculous” and “patronising”.

A Don’t Pay spokesman said: “It’s no surprise so many people are ready to take this action – it’ll be the only option left for millions of us this winter after our bills soar yet again. With so many people facing a cold and hungry winter, not doing anything is too great a risk”.

Desperate Britons are more concerned with heating their homes this winter than suffering poor credit scores, some refusniks say, while the Don’t Pay website goes into more detail. It says:

Your energy bills aren’t a loan, so missing payments aren’t certain to affect your credit score in the same way. But some suppliers do report missed payments to credit agencies, so in those cases it’s possible that there will be consequences to your credit score.

If you are worried about your credit score, remember that energy suppliers can’t take any action if you make a payment within 28 days. It would still devastate a company’s cashflow if thousands of people cancelled their direct debits and paid a few weeks later, with no consequences to the strikers.

When prices go up and our energy usage increases over winter, millions of us will miss payments whether it affects our credit score or not. It’s important we take action together to stop it getting to that stage.

Although the campaign has only signed up 112,000 so far – slightly up from yesterday – if 1.7 million are about to ditch their direct debit arrangements and take the full 28 days to pay their bills, then this will undoubtedly make a fairly significant dent in the energy suppliers’ cash flows.

When it comes to the outstanding debt repayments that the suppliers will attempt to recover, each consumer is entitled to ask for a repayment plan, which the suppliers must provide, spreading the payments over an agreed period.

Increasingly, the indications are that these repayment plans will be much in demand, especially after the latest warning from the leading bank, Citi, that UK inflation is set to hit 18.6 percent in early 2023, driven mainly by energy price increases.

Citi’s prediction, we are told, is significantly higher than previous modelling of the impact of rising costs. Earlier this month the Bank of England said it expected inflation to reach 13 percent by the end of the year, while the Resolution Foundation thinktank has forecast it could reach as high as 15 percent by early 2023.

The last time UK inflation reached 18 percent was in 1976 when an oil supply shock ripped through the global economy and left the UK famously seeking a bailout from the International Monetary Fund.

There is something of that era in our current predicament, especially with the rash of strikes breaking out as unions flex their muscles. But, having lived through that period, I would say that there is more sympathy for the strikers now than there was then.

When one sees the in-your-face reports of the multi-million salaries and bonuses paid to water and energy chiefs, and when the average pay of FTSE 100 CEOs has jumped by 39 percent to £3.4 million, the call by Bank of England chief, Andrew Bailey, for restraint on pay rises, to avoid embedding inflation, is unlikely to be heeded.

This is even more unlikely when Bailey himself couldn’t remember that his own annual salary was an inflation-proof £575,000, while the Bank of England has paid out £23 million in staff bonuses in 2021/22, up from £22.1 million the previous year.

When the jump in executive pay for the FTSE 100 CEOs means that the average UK CEO now collects 109 times that paid to the average British worker, up from 79 times in 2020, any moral authority that the elites might have had, to support calls for restraint, has evaporated. Corporate greed has terminally eroded any semblance of a social compact.

Much the same now goes for repayment of personal debt. When the working class mores, of paying your way, has been overtaken by the “consumer society” ethos, where debt is just another commodity, and the less salubrious credit card companies think nothing of advertising loans on TV with an APR of 99.9 percent, fewer people are inclined to accept any moral responsibility for settling debts.

With Ofgem set to raise October’s energy cap on Friday, when the next tranche of energy increases will become apparent, the situation will deteriorate still further. And if the forecast rise in January does bring the cap to the forecast level of £4,266, non-payment will become the norm, with no hint of stigma for those who cannot or will not pay.

The oddest thing about all this though, is that when all these genius energy CEOs on their multi-million salaries, decided to double their retail prices, and then double them again, they didn’t see this coming. What precisely did they expect when they went to war against their own customers? Campaign medals?

As for the government, it has urged people not to strike against paying bills completely. A spokeswoman says: “We understand that people are struggling, but cancelling direct debits will only push up prices for everyone else and affect personal credit ratings”. At least we don’t need another space programme. These people are already on another planet.