Losing our grip on power

At the time of writing, we are still awaiting the UK Government’s response to the recent announcement by Ofgem (The Office of the Gas & Electricity Markets) that the price cap for energy prices will be increased in October to £3,549 for a typical dual fuel customer; and to discover what further intervention will be made.

Regardless of this, it is unlikely that any additional rescue plan will be enough to prevent millions from now falling into debt, not just because of rising energy prices, but also because of the inflationary effect those price rises are having on other essentials, like food and fuel. Also, it now appears we are at the beginning of a cycle of rising interest rates, which will mean higher debt and mortgage payments for millions.

This is placing money advice services across Scotland in an impossible position, as they try and prepare for what is likely to be a wave of clients seeking help with deficit incomes. These are clients whose incomes are no longer sufficient to meet their essential expenditure. In such situations, it won’t be a simple case of telling clients to prioritise their energy bills over their credit cards, personal loans, and other unsecured borrowing. Instead, the problem will be which of a client’s priority expenditure should take priority over other priorities, such as rent, council tax or car finance agreements?

This will involve weighing up the risks of not paying rent or mortgage against not paying energy bills: the risk of increasing arrears and losing your home against not being able to heat it; and in relation to council tax, the risk if you go into arrears that you will get a wage or bank account arrestment, potentially making your situation worse. For car finance, it will be the risk of losing your car and being left with a potential shortfall debt, and in some cases an inability to get to work and earn a living.

Are deficit payment plans the solution?

In such scenarios, what will be the solutions available to clients? It won’t be debt management solutions like the Debt Arrangement Scheme or bankruptcy, as if you can’t afford to pay your current essentials, your debt will not be manageable; and if you are just going to slide back into arrears, where is the relief in bankruptcy as a solution?

The only alternative for people will be to pay what they can afford and cancel direct debits. However, this may mean higher prices, added charges and fees, and other consequences like damaged credit ratings and disruptions to energy supplies.

Part of the problem is that, unlike with the response to COVID-19, what is missing from this cost of living crisis is an offer of forbearance from creditors. If people, therefore, go into arrears, there is nothing to suggest that energy providers won’t actively seek to recover their debts from them and report missed payments to credit reference agencies, damaging credit ratings.

Debt recovery options for providers

The most likely debt recovery option that energy providers will use is prepayment meters, as this will allow them to recover arrears from people’s meters every time they top up. The problem, however, is that where people are not able to top up they will end up disconnecting themselves. It is not surprising, therefore, that calls are already being made for a moratorium on energy firms using these meters to recover debts.

However, for many consumers it is already too late, as more than half of UK homes now have smart meters installed and these allow energy providers to switch customers on to prepayment mode remotely, with the press of a button. Where people don’t have smart meters installed, firms will need to gain access to homes to install them.

Standard licence conditions: some protection

The UK energy market is governed by myriad primary and secondary legislative provisions, including the Gas Acts 1986 and 1995; the Electricity Act 1986; the Competition and Services (Utilities) Act 1992; the Utilities Act 2000; the Energy Acts 2010, 2011 and 2013; and the Consumer Rights Act 2015. Most of this law is reserved to Westminster.

However, gas and electricity suppliers also have licence agreements with Ofgem and some of the standard licence conditions (“SLCs”) in these agreements may offer some protection for consumers.

So, for example, SLC 0 requires firms to treat customers fairly, while SLCs 25 to 30 also contain several provisions that are intended to protect consumers. One useful condition is SLC 26 which requires firms to establish a priority service register for vulnerable customers and to actively try and identify which of their customers are vulnerable. This can include customers who are pensioners, or who are suffering from physical and mental illnesses, and customers who are pregnant or have young children in the household. When such customers are identified, firms are under an obligation not only to treat them fairly but to offer additional support in the form of various priority services. They should also have regard to these vulnerabilities before deciding to install a prepayment meter, which should not be installed where it would be unsafe or unreasonable for someone to operate such a meter (SLC 27.6(a)(iii)).

Firms are also under an obligation to try and enter reasonable repayment plans with customers who are having difficulty paying, and should have regard to their ability to pay (SLC 27.8). They should also treat customers on a case by case basis (SLC 27.8A(a)(i)).

Where customers already have a smart meter installed and a firm wants to switch it to prepayment mode, they must provide customers with seven days’ notice and should not exercise the right in relation to any amounts genuinely in dispute (Electricity Act 1989, sched 6, para 2; Gas Act 1986, sched 2B, para 7).

Warrants of entry

However, for those UK households that still don’t have smart meters and are still operating old style credit meters, if firms do want to switch them or disconnect them, they will need to gain access into the customer’s home.

In relation to this, the first thing to note is that firms do not have a right of entry into anyone’s home unless it is an emergency, or they have a warrant from the court. Nor can someone suffer any penalty for refusing entry to a person without a warrant (Rights of Entry (Gas and Electricity Boards) Act 1954, s 1). Where a warrant is granted, however, refusing entry can lead to a £1,000 fine.

An application to gain entry can be made under s 2 of the 1954 Act. However, before the court can grant such a warrant it is required to be satisfied that the right of entry is reasonably required, and any requirements in any relevant enactments have been complied with.

This does suggest that where a debt is reasonably in dispute, or the firm has failed to comply with obligations under Ofgem’s standard licence conditions, it may be possible to argue that a warrant should not be granted.

Equally, SLC 28B.1 prevents a firm from applying for a warrant to install a prepayment meter or to use such a warrant, where installing a meter “would be severely traumatic to that domestic customer due to an existing vulnerability which relates to their mental capacity and/or psychological state and would be made significantly worse by the experience”.

However, the 1954 Act does not place any obligation on the energy firm to notify its customers that it intends to apply for such a warrant, albeit some firms in their code of conduct state they will notify them. The Act also doesn’t place any obligation on the court to notify the customer or give them a right to be present or represented at a hearing. This clearly raises questions whether courts would be in breach of article 6 of the European Convention on Human Rights if such an opportunity was not provided.

Arguments could be made that such notifications would not be reasonable where the reason for wanting entry related to an emergency or where it related to theft and tampering (as notification could defeat the purpose of gaining entry); it is hard to see, however, any justification for not providing notification where the reasons for wanting entry relate to arrears.

Right to complain

Like any rights, unless there is a remedy available to customers, they are meaningless. Customers, therefore, can complain to their energy provider where they are unhappy with their conduct; or where they believe the firm has failed to comply with Ofgem’s Standard Licence Conditions. Firms then have eight weeks to resolve the issue or issue a deadlock letter. Customers can then escalate their complaint to the Energy Ombudsman.

Caught in the spiral?

Peter Nicholson highlights some of the advice available for those with serious debt issues, and the recurring messages that emerge

As Alan McIntosh writes in the preceding feature, many people in the coming months are likely to find their incomes no longer sufficient to meet even essential expenditure. For them there may be few options other than to seek creditor forbearance. For anyone worried about rising debt levels, however, the first advice is always: seek help as soon as possible.

Step by step approach

Before someone struggling financially presses the panic button, they should check whether their position is in fact irretrievable. “MoneySavingExpert” Martin Lewis’s website, to take one approach, offers a four-step guide to deciding the right solution, beginning with an assessment of how serious the situation is.

A “debt crisis” would exist for someone struggling to pay all their basic outgoings, and/or having debts (excluding mortgage) bigger than their annual after-tax income. Someone not yet at that level is more likely to be in a debt spiral, which still needs urgent action but can possibly be tackled through, first, more “pain free” savings (with the help of a proper budget and checking that all available benefits and rebates, instanced on the website, are being claimed), and then the more “painful” savings, meaning those with more impact on lifestyle. These could be giving up subscription TV channels, gym membership or indeed the car. Lewis even offers a “demotivator” tool – a “fun tool” to stop you spending what you can’t afford.

Step 4 is for those still struggling after all the above. Then it’s time to get help from a debt charity – as opposed to a commercial concern offering debt help or loan consolidation – and in particular, take advice before embarking on one of the formal debt solutions.

Time to prioritise

Debt Camel has been run since 2013 by former debt adviser Sara Williams. Her page dealing with help for those who can’t make ends meet, starts with the twin aims of budgeting and knowing which debts are and which are not priority.

“Paying your rent/mortgage, car finance, food, clothes and heating may leave little or nothing for unsecured loans, credit cards or catalogues”, she writes. “This may sound alarming, but non-priority creditors know that they are bottom of the list and that priority bills have to be paid in full.”

Council tax is another priority, because of the enforcement powers readily available against those in arrears.

For non-priority debts, Williams recommends approaching the creditor to ask for a payment arrangement (once the budget exercise confirms you need it, because it affects your credit record). Financial Conduct Authority rules require creditors to show “forbearance and due consideration” to customers in difficulties, and they may agree not to add interest or charges, and to accept reduced payments. She favours talking to a debt adviser first.

Moneyhelper.org.uk cautions as to the need for fair shares when making arrangements with creditors, because if these break down and a formal debt solution becomes necessary, certain options may not be available if some creditors have been prioritised over others. Again the advice is, talk to a debt adviser first.

This site also has a page that allows the user to enter the types of bills and payments they are most worried about, and then suggests an order of priority, and help that might be available.

Another point worth noting is that people in certain categories of vulnerability (including pensioners, pregnant women and parents of young children) may be protected from some types of enforcement action.

If debt levels really appear unsustainable, the Coronavirus (Recovery and Reform) (Scotland) Act 2022 has kept in force the emergency provision allowing a debtor to apply to the Accountant in Bankruptcy for a six month moratorium on diligence, to give time to consider options for formal debt solutions. A 60-day breathing space is available in England & Wales.

Self help?

What are the prospects for taking matters into one’s own hands? One campaign against energy prices calls for people to pledge to stop their direct debits if the October rise goes ahead. Don’t Pay UK believe that if 1 million people sign this pledge (and their action will only go ahead if they get that number), energy companies will be in serious enough trouble that it will “bring them to the table”.

However they admit this strategy has risks, including being transferred to prepayment arrangements (for those on smart meters), higher bills through coming off direct debit, and harm to credit ratings. And it is difficult to find any external advisers who think that cancelling direct debits is a good idea. Debt Camel, while supporting the campaign’s aim of lower bills, warns that the site doesn’t fully explain the effects that cancelling a direct debit may have.

As of early September the site was still showing fewer than 150,000 pledges, so without a late rush it would fall well short of its target in any event.

To finish as we began, whatever your financial worries, the top line is – get advice. There are many avenues available, all confidential, and no one should feel alone in their time of need. Debt is now a national problem.

• Money Advice Scotland – Help for people with money worries
• Citizens Advice Scotland – Money Advice Services
• Advice Scotland (includes geographical guide to local agencies)
• Mygov.scot Links to Scottish Government supported organisations