More than 3.5 million people are paying£160m a year more for their electricity and gas because they are using more prepay meters rather than paying by direct debit, according to the Institute for Public Policy Research.
Currently pensioners and benefit claimants use prepay meters and weekly savings stamps because they are worried about losing control over their household budget and being charged up to£39 for defaulting on direct debits to their energy companies. Over three million people a year spend more than 10 per cent of their income on gas and electricity.
Over a million a year are disconnected or self disconnect. IPPR's plan could reduce the amount people go without supply because of a lack of cash, while re-assuring consumers that they have their costs under control and that their bills are being paid.
In America, a similar pilot scheme in Ohio helped 60,000 low-income customers reduce their monthly gas bills by as much as 18 per cent.
IPPR deputy director, Ian Kearns, said:
'At the moment, the cruel irony is that the poorest people in the country pay the most for gas and electricity. That's not just unfair, it makes no sense for either the energy companies or the taxpayer.
'Gas and electricity companies don't want to have to use prepay meters or weekly saving stamps because they are expensive to maintain and administer. At the moment they pass the extra cost on to these consumers.
'If the government bought the gas and electricity direct, they could pass on the savings to the poorest and protect them from being ripped off. And they could do it right away because the computerised mechanism already exists to deduct utility payments directly from Income Support and the Pension Credit.'
IPPR calculates that around two million people could save around£83.5m a year on gas (around£41.75 a year each) and that 3.6 million people could save around£76.7m on electricity (around£21.13 a year each).
Prepayment meters cost, on average,£39 more a year for gas and£23 for electricity, compared with the cost of paying by direct debit.
More than a third of prepayment customers and more than a fifth of gas prepayment meter users are on low incomes.
The 'Third Party Payments System' already exists. It allows for various types of regular payments (gas, electricity, water, council tax and fines) to be deducted a claimant's weekly or fortnightly Income Support or Pension Credit benefits payment. Details of the amount deducted for each claimant are automatically forwarded to the Department for Work and Pensions accounting system (PACS), which then makes a single bulk payment to each of the third parties. Notifications to claimants and third parties are sent automatically. Clerical intervention is needed only for payment to be set up and changes to payment arrangements.