Why in UK the DD amount is constant figure?

oliverbrown

With all the fuss about energy suppliers using overinflated direct debits, perhaps Ofgem could consider mandating energy suppliers to make whole bill variable direct debit the default option.

Section62

Ebe_Scrooge said:

izawa said:

What I am trying to find is whether there was any historical reason in doing so? Perhaps, it could be due to avoid surprises to people if the bills were exact and made sense to spread over a year.

It's probably down to pure practicalities.  To generate an exact bill would mean a meter reading would have to be submitted immediately prior to the bill being produced.  That's either a whole load of labour costs in sending out thousands of meter readers, or else relying on people to submit their own reading on exactly the right day - neither of which is realistically practical.

When I was last on quarterly billing (about 4 years ago I guess) I got an email about 10 days before the billing date asking for readings.  There were usually one or two follow-up nags if you didn't respond.  If no reading was submitted by the billing date then they issued an estimated bill.

Seemed to work fine and be perfectly practicable.

My recollection is similar to Gerry1's.  Fixed monthly DD's aren't a 'historic' thing, it is a relatively recent innovation. In the old days you either had up to three months of credit on the energy you'd used, or you had to have a prepayment meter.  If the 'Board' didn't feel you were creditworthy then the latter was the only option.  When I first became an energy customer I had to make an advance payment (effectively a bond, paid by cash or cheque in the 'shop') which was refunded (as a credit against my quaterly consumption costs) after a year or so of making payments on time.

As energy costs have crept up, providing up to three months of credit has become increasingly expensive for the energy co's, and for start-ups it could be a prohibitive barrier.

Fixed monthly DD's go a long way to solving both issues.

Olinda99

Just to add OVO pay 3-5% on credit balances (depending on how long you have been with them) so a high fixed DD is the way to go !

oliverbrown

Section62 said:

As energy costs have crept up, providing up to three months of credit has become increasingly expensive for the energy co's, and for start-ups it could be a prohibitive barrier.

I suspect going forward, making things harder for start-ups will be seen as a good thing, owing to the practises of many failed start-up energy suppliers.

Ultrasonic

oliverbrown said:

With all the fuss about energy suppliers using overinflated direct debits, perhaps Ofgem could consider mandating energy suppliers to make whole bill variable direct debit the default option.

With growing number of people likely to end up struggling to pay bills I think that would be a terrible idea personally. If ever there were a case for equally distributed bills it is now. They need to be accurately estimated bills though and this is where I think OFGEM have a role.

oliverbrown

Ultrasonic said:

With growing number of people likely to end up struggling to pay bills I think that would be a terrible idea personally.

No reason the two systems can't coexist, for people who struggle financially a fixed monthly direct debit could of course be preferable and should be available. It's more about shifting emphasis towards a model that doesn't encourage energy suppliers to inflate direct debits.

pochase

oliverbrown said:

Ultrasonic said:

With growing number of people likely to end up struggling to pay bills I think that would be a terrible idea personally.

No reason the two systems can't coexist, for people who struggle financially a fixed monthly direct debit could of course be preferable and should be available. It's more about shifting emphasis towards a model that doesn't encourage energy suppliers to inflate direct debits.

You were asking that the variable rate should be the default.

And in this case exactly what Ultrasonic fears would happen. The people who are struggling are not the often the people who would even realise the problems of a variable debit order or put any thought into it. Many of them will be very happy in summer that there is money left and spend it, and will not be able to pay in winter.

We already have a system that allows both types of direct debits, and I personally think it is the right thing that you have to request the potentially disastrous variable debit order. At least you will need to put some thought into it and get yourself enough information to learn that it is available.

Of course that there should not be overinflated fixed direct debit orders is another case.

oliverbrown

pochase said:

Of course that there should not be overinflated fixed direct debit orders is another case.

It's not another case, it is THE case. How are we going to address energy suppliers overinflating fixed monthly direct debits?

Mstty

By educating people to talk in kWh and not monthly amounts is the only way. @oliverbrown

Only when armed with kWh usage can you reasonably discuss and set rates with energy suppliers.

Most people that come onto the board saying my energy company wants £300 a month once you get their usage and factor in the expected October rise it's not far off.

As an example I know we are using about £100 per month now on the current capped rates and our DD is set to £177.70. I know what we will use in the winter in kWh and the extra we are given our energy company now means at the end of our first year we will have a balance of about £15. Most don't know that and how to set their DD up with their energy company.

oliverbrown

Mstty said:

By educating people to talk in kWh and not monthly amounts is the only way. @oliverbrown

Only when armed with kWh usage can you reasonably discuss and set rates with energy suppliers.

The reality is, the vast majority of people are not going to analyse their energy bills and usage to the degree we do here. Banking on that principle as a solution is not a viable way to prevent energy suppliers from industrial overinflation of monthly direct debits.