Smart meter warning: Four million households to spend a third of their income on energy bills next year

The situation comes as energy bills are set to rise again, with Ofgem announcing a one per cent increase to the price cap from January in England, Scotland and Wales.

For households with prepayment meters, this means the average annual bill will increase by £21 to £1,690, significantly higher than the typical £1,300 bills seen in late 2021.

Labour's recent decision to cut winter fuel payments means support will reach dramatically fewer households this winter, with recipients dropping from 11 million last winter to just 1.3 million.

The payment, worth up to £300, will now be means-tested and available only to those on pension credit or other income-related benefits.

The Treasury expects to save around £1.3 billion in 2024/25 and £1.5 billion in subsequent years through this measure, which aims to address the £22 billion public finance deficit Labour claims was inherited from the Conservatives.

However, a surge in Pension Credit claims since the announcement may result in lower savings than anticipated.

Age UK estimates that around 600,000 older people used prepayment meters in 2023, with this figure likely increasing due to rising energy costs.

The Resolution Foundation reports that prepayment meters are heavily concentrated among Britain's poorest households, with a quarter of the poorest fifth of families using them compared to just 1.5 per cent of the richest.

These households typically live in rented properties with lower energy efficiency, making them more expensive to heat during winter months.

More than half of prepayment meter households are in debt to their energy suppliers, according to Ofgem figures.

The thinktank notes that debt costs are recouped when meters are topped up, leaving less credit available for essential energy use.

Unlike regular billing, prepayment meters remove the ability to spread energy costs throughout the year, leading to a surge in winter expenses.

During summer months, these households spend about 12 per cent of their income on energy, but this figure spikes to over 30 per cent during winter.

Jonny Marshall, principal economist at the Resolution Foundation, said: "For many households, the recent energy crisis is an episode they're keen to forget. But for the million households on prepayment meters this winter, it will feel like the crisis never ended."

He warned: "Persistently high energy costs and heavy use during the cold winter months mean that households on prepayment meters are set to spend almost a third of their family budgets on energy during the next three months."

"These high costs can squeeze out other important spending and increase the risk of people rationing their energy use in a way that can harm their health," Marshall added.

The situation is particularly concerning as events in Russia and the Middle East have led to fluctuations in energy prices on the wholesale market.

A Government spokesperson said they are "doing everything we can to support vulnerable families this winter" through various measures.

This includes the £150 warm home discount, expected to support three million eligible households, while 1.3 million households will receive winter fuel payments of up to £300.

Energy UK, working with the Government, has promised £500m of industry support for bill payers this winter, including credit on bills, prepayment meters, and enhanced debt write-off schemes.

The Government also emphasised its work with Ofgem to ensure suppliers "only install involuntary prepayment meters as a last resort."

The measures come after suppliers faced criticism during the energy crisis over force-fitting of prepayment meters, leading to a temporary ban on the practice for nearly a year.