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Energy bills: How much will the new prepayment charges be?

The government has announced it is ending the prepayment meter premium which affects more than four million households.

BIRMINGHAM, ENGLAND - FEBRUARY 07: In this photo illustration a prepay electricity key sits in a prepayment electricity meter in a rented home on February 07, 2023 in Birmingham, England. Ofgem has ordered all UK energy companies to suspend the practice of forcibly installing prepayment meters and will report back to the Business Secretary today. (Photo illusttration by Christopher Furlong/Getty Images)
The government is ending the prepayment meter premium. (Getty)

The government has announced it is ending the "prepayment meter premium" which affects more than four million households.

In his Budget on Wednesday, chancellor Jeremy Hunt said the practice where those using prepayment meters (PPMs) - who are often on lower incomes - paying more than customers on direct debit would end.

The Citizens Advice charity has previously estimated around 600,000 people were forced onto a prepayment meter last year because they could no longer afford their energy bills.

Hunt said: “Ofgem has already agreed with suppliers a temporary suspension to forced installations of prepayment meters. But today I go further, and confirm we will bring their charges in line with comparable direct debit charges.

“Under a Conservative government, the energy premium paid by our poorest households is coming to an end.”

Read more: Energy bills: Martin Lewis explains post-budget changes to gas and electricity prices

Britain's Chancellor of the Exchequer Jeremy Hunt holds the budget box on Downing Street in London, Britain March 15, 2023. REUTERS/Peter Nicholls
Chancellor Jeremy Hunt holds the budget box on Downing Street. (Reuters)

When will prepayment energy meter bills be cut?

The government said the prepayment changes will be made as part of an update to the Energy Price Guarantee (EPG) and come into affect from 1 July.

It added it wanted to ensure the premium was ended permanently by April 2024 and was working with Ofgem to make this happen.

How much money will people save?

The chancellor confirmed he was bringing prepayment meter charges into line with comparable direct debit customers until the EPG ends, saving them an average of £45 a year.

The government said the PPM consumers were disproportionately vulnerable, on lower incomes and in fuel poverty, and therefore are more exposed to price changes.

What other changes have been announced?

The chancellor also confirmed that the cap of average household bills at £2,500 will be extended at its current level from April to June. This will prevent a significant rise in people's bills.

Wealthier pension savers will also be boosted by an increase in the pensions annual allowance – the limit on how much money people can build up in their pension in any one tax year while still benefiting from tax relief – from £40,000 to £60,000.

The lifetime pensions allowance meanwhile will be abolished. It has stood at £1.07 million, with savers incurring tax after that personal pension pot threshold was exceeded.

Read more: Budget 2023: What the childcare changes mean for you

Hunt announced an expansion of free childcare for children over the age of nine months.

Plans include providing 30 hours a week of childcare for eligible working parents in England with children as young as nine months old.

The state will also pay the childcare costs of parents on Universal Credit moving into work or increasing their hours upfront, rather than in arrears, removing a major barrier to work for people receiving benefits.

Hunt revealed he would provide a £63 million fund to “keep our public leisure centres and pools afloat” in response to high costs, and £100 million will be given to support thousands of charities and community organisations.