Examination of Witnesses (Questions 1-19)
22 JUNE 2004
Mr Allan Asher, and Mr Ed Gallagher
Q1 Chairman: Good afternoon, gentlemen.
Can I welcome you today? It is the first time that both of you
have appeared before us, although your organisation has provided
us with evidence in the past and we are very pleased that you
are able to come along today. You are all too well aware of the
reason why we are having this inquiry today. We understand that
in recent years there have been about 20,000 customers disconnected
for fuel debt, the vast majority of them being gas customers.
How many of the people who have been disconnected cannot pay rather
than will not pay? Have you made any kind of guesstimate as to
that?
Mr Gallagher: We have our own
data which indicates that the vast majority of people who are
disconnected are people who, in your terms, cannot pay rather
than will not pay. We have also done some investigation into independent
research which tends to support that conclusion. Most of our evidence
to you this afternoon will be predicated on the basis that we
would rather redefine the cannot pays as the vulnerable in society.
Q2 Chairman: I think you should realise
that, as politicians, the words "vast majority" mean
51 per cent. If you could be a bit more specific than that and
define the difference between vulnerable and cannot pay, that
would be helpful.
Mr Asher: Let me point you to
some of the starkest facts we found in our research. There are
details of exactly what we did and how we did it set out in our
submission. Using the commonly acceptable indicators of multiple
deprivation, we were able to find that almost a third of all disconnections
in this last year were of people who lived in areas of multiple
deprivation—that is, poverty, poor housing, children, health
concerns and poor education. There is a real pocket there and
it does cry out for some remedy. Elsewhere, a number were disconnected
because of debt. Much of that debt was created by billing errors,
by failures of companies to follow procedures through. We even
found six per cent of people disconnected had already paid.[1]
Q3 Chairman: Did you do any kind of postal
district correlations with areas of severe disadvantage when you
were establishing these matters?
Mr Asher: Yes, we did. There is
some very sophisticated computer software available called Mosaic
which divides the population up by postcode district. It was that
upon which we overlaid all of the actual data for disconnections
that we got from all the supply companies in the last year. That
leads us to this conclusion that the huge spike in disconnections
is from those postcodes with the highest levels of deprivation
in Great Britain.
Q4 Chairman: One might say that, in the
case of pensioners—we will probably take this up with pensioners'
organisations—there are now things like winter fuel payments
and the like. Have they had any impact, or are they seen as a
tax-free Christmas bonus which are perhaps used for whatever purposes
at that time of year?
Mr Asher: I have no doubt it has
had an effect because, after all, it increases income. Any effort
to increase income or make available to people knowledge of benefits
that they had not been receiving is going to reduce the problem
although, as you suggest, it is not really targeted. The reality
for tens of thousands of Britons is that they live from hand to
mouth. If receiving a cheque some time in winter does not coincide
with being pressed to pay a utility bill, the chances are it might
be applied for some other purpose.
Mr Gallagher: We might want to
comment in a moment about Fuel Direct, which seems to be withering
on the vine at the moment, which was an extremely good scheme
to provide money to pay fuel bills out of benefits. I think we
were impressed by one or two companies that set up trust funds
which, amongst other things that they do, help people access the
benefit system. We quite often find that the people who have difficulty
paying their electricity and gas bills have problems with other
bills as well. There are a number of examples where this trust
fund has been able to generate significant sums for people who
have difficulties in paying.
Q5 Chairman: Could you explain how the
trust fund is established, who are the trustees, how does it operate?
Is it something that is out of the general largesse of the company?
Is it part of corporate social responsibility, conscience cleaning
or something like that?
Mr Gallagher: It is probably all
those things. If you work out the commercial arithmetic, there
is quite a lot of sense in the company having a long-term customer
who is not continually moving in and out of debt with all the
costs associated with that. Costs of disconnections can be quite
high. Certainly, if you compare those costs with the average margin
on a fuel bill, it does make some commercial sense for companies
to implement these sorts of procedures.
Mr Asher: Let me explain. This
particular trust scheme was set up by one of the suppliers, EDF,
and it has a capital of several million pounds. The idea is that
customers of EDF who are in big trouble and cannot pay their bills
are offered some credit counselling. They offer some debt reconstruction
advice. Sometimes they will pay up the debt itself and/or show
people how they can access other benefits. I believe that it is
a great example and we are looking forward to other suppliers
coming up with even bigger and better schemes.
Q6 Linda Perham: You were talking in
the beginning about the six per cent of people who had paid their
bills and I was struck by a couple of things in your evidence.
One was that in the 12 months up to March 2004 you handled 522
cases of possible, threatened or actual disconnection in error.
Of these, 239 were recorded as actual disconnections in error.
There is another figure in your memorandum, showing the reasons
for consumer contact, where you say 56.5 per cent of actual disconnections
were because of disputed responsibility where somebody has moved
out and left a debt. It seems that the fuel companies are jumping
in there. Are they too willing to resort to disconnection to get
rid of the problem of the money they think they are owed?
Mr Asher: I believe that is the
case. I believe there is a culture of collection rather than a
culture of assistance. The data we have shows more than half of
those disconnected were disputing the debt. Under the rules, they
should not be disconnected at all. Some had paid. There were many
other explanations, errors in the codes and things, which suggest
those people should never have been disconnected or, at the very
least, much greater checking should have occurred first. We have
included in our submission a number of case studies that show
the personal cost of this. One consumer with a heart condition
awoke to find disconnection engineers in his bedroom, having forced
entry to the house in circumstances where they had no right to.
Q7 Linda Perham: The companies have to
go to court, do they not? I know somebody who has sat on these
particular cases and we always ask about the vulnerability of
the persons they want to disconnect and whether there are children
present. The answer is always, "No, we have checked this
and there are no children there."
Mr Asher: Sadly, I wish that were
so. One of our big concerns is that the warrants process is so
often slack. I have discussed this myself with a number of magistrates.
One told me that usually somebody will come to see him with a
stack of 50 or perhaps more warrants. The process, he said, in
his area was that they might test check one, two or three and
then sign all of the rest. The evidence is clearly that many of
these warrants are gained either through sloppy or inaccurate
information so that there is negligence and a lack of concern.
One of our recommendations is that that process be tightened up
so that a responsible official from the company needs to certify
that they have done certain things that are pretty basic to ensure
that the debt is genuinely owing, to ensure that the address is
right, to ensure that it has not been paid and that they have
followed all their licence conditions and industry best practice
before they go to the magistrate to have the warrant signed.
Mr Gallagher: In our view, that
would be quite a senior official in the energy company, not a
fairly junior person.
Q8 Linda Perham: There would have to
be somebody to carry the can?
Mr Gallagher: Yes.
Q9 Mr Clapham: Not everyone is on the
mains gas supply. For example, I have villagers on liquid petroleum
or oil. Do we have any figures available as to people who have
been refused the sale of their gas? When one is on liquid petroleum,
it is generally paid up front so it is quite easy for a company
to refuse to deliver liquid petroleum or indeed oil.
Mr Asher: We would like to be
able to speak to the Committee further about that at another time.
Energywatch though does not have the authority to deal with LPG
and issues that are not connected with mains gas. However, we
would like to encourage you to help us get those pipelines extended.
Chairman: Your predecessors were very
hot on this. That was one of their campaigning points.
Q10 Sir Robert Smith: You mention that
quite often they do not follow the rules. What are the penalties
for not following the rules?
Mr Asher: So far, they seem to
be pretty close to zero. As an example of that, Ofgem, late last
year, did an audit of the extent to which companies obeyed their
absolute licence condition relating to the priority service register.
They found that few companies were following their licence conditions
at all and they published a report pointing out that fewer than
a quarter of consumers who were eligible for some of those benefits
had even heard of it. They checked with a number of companies
by phoning them and found that, on the phone, quite a few of the
sales staff denied even that their companies had a priority services
register, much less made it easy for people to join. One of the
companies that does have a process makes you read through a 32
page brochure, then fill in a written application that you have
to send in before you can get on it. That is just one example
of many that I could give.
Q11 Sir Robert Smith: In 2002, you with
Ofgem produced six key areas for preventing debt and disconnection.
In a sense, it was about good practice; minimising billing errors
and various other suggestions. You are painting quite a bleak
picture there but what progress have the companies overall made
in these areas? Have they improved in some but not others?
Mr Asher: I am delighted to say
that a number of companies have done some good things, although
on the whole if those six common sense provisions were applied
to their letter and spirit prior to disconnection we are convinced
that the numbers would plummet, because among other things they
include that if you notice from the management of an account that
debt suddenly starts to stack up, that people who used to pay
regularly have stopped paying, that should trigger something in
the organisation that tells you something is wrong. One company
very cleverly at that point will go to the customer and say, "We
think there might be problems emerging here. Is there something
we can do to help you?" Of course there is another, the one
I have mentioned with the trust fund. There are some very good
examples. Sadly, they are few and far between and we think that
the absence of applying these is part of the problem, not part
of the answer.
Mr Gallagher: The heading is "Preventing
Debt and Disconnections." The debt is relatively unchanged
both in terms of the number of people in debt and the amount of
their indebtedness. Disconnections, which is the other part of
the equation, have gone down, but we are not at the moment convinced
that this is the beginning of a long term and sustainable trend.
We think it has more to do with political or tragic circumstances
and the odd reining back for the moment. We do not necessarily
feel that the culture has totally changed. We would be delighted
to be proved wrong on that.
Q12 Sir Robert Smith: On a simple thing
like minimising billing errors, have you detected movement one
way or the other?
Mr Asher: Sadly, billing errors
still remain one of the very highest proportions of complaints
that energywatch receives. There are tens of thousands of those
each year and they cause all sorts of grief. Many consumers often
do not get bills regularly. One not long ago we found had not
received a bill for seven years and the debt had built up to £2,500.
More often, six months, nine months or a year, and that can cause
a huge shock if you get that sort of a bill. In other countries,
Australia and the United States, there are jurisdictions which
say if you have not rendered a bill after a year you lose the
right to do so.
Q13 Chairman: Why is there this discrepancy
between gas and electricity? Are gas companies more vicious? What
is the reason for the fact that far more gas customers are disconnected
than electricity customers?
Mr Asher: I will invite you to
check that also with the suppliers who are speaking soon. However,
it is our impression that it is about both culture but also the
technology. In relation to electricity, by simply disconnecting
power, that is something that can be done quite simply. However,
with disconnecting gas, there is the issue of having access to
appliances and things to ensure, when there is a reconnection,
that there is not a safety problem that emerges. There is a technical
difference between the two.
Q14 Mr Evans: What do you think the barriers
are to making some progress in all of this? You seem to be starting
from the premise that these companies are just bad companies,
that perhaps they have a certain enjoyment in switching people
off now and again. What can you suggest that they should be doing
to make some progress here?
Mr Asher: A couple of very practical
things. Firstly, the Association released a press release, I think
just today, saying that they insist on having the right to disconnect
dishonest consumers. I reckon the starting point for getting it
right is to understand that there is a lot about what they are
doing which is wrong and not to start off assuming that consumers
are dishonest. Behind that, we think there should be a better
definition of vulnerability, fixing up their own procedures—and
that is about billing errors; it is certainly not about disconnecting
people who have already paid or who do not deal with you at all—and
it is about having a greater concern for the vulnerable and then
some very practical things about offering assistance rather than
shooting first. Often, if somebody is disconnected, the cost of
that disconnection is just whacked on top of the debt so suddenly
you go from a debt of maybe £150 or, say, £200; add
another £300 for the disconnection and the person is in debt
to £500. That does not help anybody.
Q15 Mr Evans: Do you think that the consumer
has some responsibility as well? If they think they are running
into problems, they ought to contact the supplier too and there
should be some sort of procedure whereby they are not going to
fear, for whatever reason? Perhaps they have just lost their job.
Sometimes, their benefit payments have not come that week and
have just been cut off for some unknown reason. If the dialogue
started earlier with the companies, maybe some people would not
get into this problem?
Mr Asher: That is exactly right.
On the whole, we have cited in our submission quite a bit of research
evidence, including that done for the Lord Chancellor's Department
last year, the report titled, "Can't Pay or Won't Pay",
a very useful document on this very subject. What that shows is
that there are classes of people who, because of loss of a job
or perhaps a break-up of a family relationship, illness or some
other circumstance, suddenly find themselves with a drop of income.
The debt balloons and the last thing they need is the heavy hand
of a debt collector or the spanner coming to turn off their energy
supplies. What they need is a bit of a helping hand, a break to
get through that and to pay. The evidence all shows that the vast
majority of consumers do pay and want to pay their bills. What
is needed is a bit of goodwill and a lending hand, not punishment.
Q16 Mr Evans: Did I understand in answer
to Linda that, whilst you are supposed to go to court to be able
to switch somebody off, they do not do that? They just unilaterally
go in without any reference to a JP or anything like that?
Mr Asher: No, that is not what
happens. If contact cannot be made with a consumer, companies
can apply through a magistrate or to a court for a warrant to
allow entry by force if necessary to disconnect systems. It is
our contention and our evidence is that many people are disconnected
with little or no contact. They do not seem to be often aware
of the consequences or where they are. The processes are made
so terrifying or so cold and clinical that somebody with all of
the other social problems that they usually have will go into
denial. What is needed is a system that encourages people to seek
some assistance with the assurance that they are not going to
have their warmth, light and power chopped off.
Q17 Mr Evans: In the case of the people
who have paid their bills and still get disconnected, is it just
one part of the company that is not talking to the other part
or is it that people have paid it very late or it has become lost
in the post?
Mr Asher: There are all of those
things. One of the big problems in the industry is something called
misdirected payments. The transfer process from accounts from
one company to another falls down tens of thousands of times a
year: inadequate recording of account numbers, inadequate transfers.
Indeed, it is one of the huge problems. If you happen to be in
that class, it might be that you just disappear from the records
for a while and pop up in an enforcement record somewhere else.
You will see also in our submission a number of case studies of
people in just that position, who find themselves cut off or with
threats of disconnection where there is absolutely no reason why
that should happen.
Q18 Chairman: Do you see any correlation
between mis-selling and this kind of accounting foul up that you
have identified? Someone does not realise that they have signed
up with a different company; the accounts are then set in train
to move from one to another and the person does not know who they
are supposed to be paying?
Mr Asher: There is evidence also
that a class of consumer does not know who their supplier is.
Each year, energywatch receives 300,000 phone calls from people
saying, "Please can you tell us who supplies our gas or electricity?"
because the system is just so poor at those points of transfer,
although the link between that and disconnections is nowhere near
as direct, but it is symptomatic of a billing system, an account
keeping system and a transfer system which are just not serving
consumers' interests. We say, before anybody is disconnected,
they should certify that they have that right.
Q19 Chairman: We had Postwatch in to
see us and they talk about what they call "pass through cases".
That is to say, cases which they pass back to the Royal Mail because
the people have not gone to the Royal Mail first. Say there are
300,000 queries. In how many instances have people come to you
because they have been unable to get satisfaction from company
A or company B? Do you split your figures in that way?
Mr Asher: We have some information
on that but I could not give you any authoritative analysis.
1 Note by witness: Six per cent of those who contacted
energywatch about disconnection had already paid. Back
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