Energy suppliers cannot take more money out of people's benefit payments to pay for rising gas and electricity bills, under a little-known rule.
The Government has put a stop on companies increasing the amount that can be charged to families who receive state financial support. The rule is in place until April 2023 and means people on benefits are immune from the rises that came in after the previous energy cap increased and will also be protected from the effect of the energy cap going up again in October and January.
It comes as Ofgem found "weaknesses" in the way some providers are setting direct debits. The regulator discovered that average direct debit levels for Standard Variable Tariff (SVT) customers had increased by 62% in the two months ahead of the price cap increase on April 1, with 8% of those customers seeing their debits double.
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It said 12 suppliers had been asked to submit action plans to resolve the issues and all firms had been ordered to review any direct debits that had gone up by double or more. The Department for Work and Pensions (DWP) says it has suspended higher payments to cover gas and electricity but does allow money to be deducted from benefits if a person is in arrears, as long as other ways of recovering it have been tried and enforcement action is a "real possibility".
These deductions can be where money is owed for gas, electricity, water, rent, council tax, mortgages, fines, child support and care home fees, reports Birmingham Live. In these cases, the amount is taken off benefits before they are paid out, and passed on directly to the supplier or other organisation until the debt is cleared.
A maximum of three of these 'third party deductions', as they are known, is permitted at any one time. The DWP says the following benefits may have such a third party deduction:
- Income Support
- income-based Jobseeker's Allowance (JSA)
- Pension Credit
- income-related Employment and Support Allowance (ESA)
- Universal Credit
But it has put a stop to energy providers trying to take more out of people's benefits to cover rising costs. Previously, it allowed higher deductions but said any amounts had to be based on meter readings rather than estimates.
The DWP said: "For one year from April 1, 2022, energy suppliers can no longer request new deductions or increased payments from a claimant's benefit to pay for ongoing fuel consumption. Claimants can still request deductions for ongoing consumption payments if they choose to do so, or increase any existing payments.
"The reason for this change is to give claimants greater control over what could be significant deductions from their benefit during a period of unprecedented energy prices."
So it does mean claimants are still allowed to ask for their deductions to be increased if they want to cover current consumption costs, prevent further debt building up and help with budgeting.
Financial guru Martin Lewis has warned of horrendous energy bill increases coming later this year. The MoneySavingExpert spoke out as predictions from analysts at Cornwall Insight suggest the price cap could rise by 64% to £3,244 from October, and then by another 4% to £3,363 from January. The official October figure will be announced later this month by Ofgem.
To help ease the cost of living crisis, households are getting £150 through the council tax payment system and £400 from energy providers over six months from October.
In addition, the first part of a £650 payment for people on means-tested benefits is being given out, with most of the money deposited between July 14 and 31. Money is also available through the Household Support Fund distributed by local councils.
But a charity has warned that cost of living payments like these won't be enough to fend off the onslaught of soaring living costs. StepChange has asked the DWP to pause all Universal Credit deductions while inflation is still soaring ahead of incomes, warning that families will find themselves with an average monthly budget deficit of £77 come October even with Government support.
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