Energy suppliers need clarity on benefit reduction scheme

Ofgem and the Department for Work and Pensions (DWP) must provide more clarity to energy suppliers on when to use the benefit deduction scheme to pay off consumer debt, Citizens Advice has argued.

Under the third party deduction scheme, DWP takes money from Universal Credit payments and from “legacy benefits” such as income support to pay energy suppliers directly.

Up to 25% of a person’s claim can be deducted for debts each month, although more can be taken as a last resort to prevent eviction or the disconnection of gas or electricity.

However, a new report published by the consumer charity highlighted confusion amongst energy retailers as to when to use deductions and said only a small number of customers can access the scheme.

A survey of eight suppliers, including former big six and large players like Octopus and Bulb, found just two of them had customers on the scheme and that last year only 4% of consumers in energy debt were using deductions to make repayments.

Around 31,000 electricity accounts and 25,000 gas accounts used deductions to pay off what they owed to suppliers in 2020.

The report pointed to the fact there are two sets of guidance applying to suppliers in relation to how they use deductions.

For example, Ofgem’s rules state suppliers have 3 options to consider when a customer falls behind:

• Setting up a repayment plan
• Moving the customer to a prepayment meter
• Using third party deductions to collect the debt direct from benefit payments

Suppliers should then work out the best option for the individual customer.

However, the DWP’s guidance states that before a deduction can be used “other methods” to recover the debt must have been tried, such as negotiating different ways of paying, and that there must be a “real threat” of enforcement action before consideration is given to applying for a deduction.

While the suppliers using the scheme thought it is an important tool, some felt strongly that the guidance from the DWP and Ofgem makes it very difficult to design processes around the needs of their customers, while remaining compliant with the rules.

Some said they were not sure whether the scheme should be offered to all customers in debt or whether it should be used as a last resort.

As such, the charity called for both government and Ofgem to issue new guidance on the role of the deductions scheme, giving suppliers a clearer understanding of when to offer it to customers.

Suppliers also asked for clearer communication from the DWP, such as why some applications for deductions fail or updates if there is a backlog of applications.

Elsewhere, the report noted a lack of awareness of deductions among customers, with different suppliers choosing to promote the scheme at different points in the customer journey. This means it can be difficult for customers to start the process at a stage when it is most helpful to them.

Finally, Citizens Advice called for the regulator to ensure all suppliers have processes in place to consider and set up deductions for consumers who are behind on bills, and take compliance and enforcement action where this isn’t the case.

Responding to the report, an Ofgem spokesperson said: “Anyone struggling to pay their energy bills should get in touch with their supplier to access the help that’s available.

“Ofgem has tough rules in place to ensure that suppliers treat customers who are struggling with energy bills fairly, which includes, where available, payments deducted from social security benefits.

“We recently introduced enhanced requirements for suppliers to support all customers facing financial difficulties through the inclusion of updated Ability to Pay principles in the supply licence.”

Utility Week contacted DWP for a response but had not received one at the time of publication.