Over four million families are set to save £45 a year on their energy bills from July as the Chancellor ends the prepayment premium.

Households on prepayment meters pay more on average compared to direct debit customers due to extra costs firms take on managing meters – such as supplying vouchers and collecting payments – being passed on to users.

The vast majority of households who rely on prepayment meters are typically vulnerable or low income, which means the higher tariff and inability to spread the cost is hitting those who can least afford it.

At his Spring Budget next week, the Chancellor is expected to announce fairness reforms to energy bills, bringing the bills of families on prepayment meters in line with average direct debit energy bill under the Energy Price Guarantee.

Chancellor of the Exchequer, Jeremy Hunt said: “It is clearly unfair that those on prepayment meters pay more than others. We are going to put an end to that.

“From July four million households won’t pay more than those on direct debits. We’ve already cut energy bills by almost half this winter, and this latest reform is proof again that we’re always on the side of families.”

Energy Security Secretary Grant Shapps said: “Charging prepayment meter customers more to receive their energy is a tax on some of our most vulnerable – this change will stop that.

“It’s even more important at a time Brits are faced with high energy costs and when we’ve seen vulnerable households wrongly forced onto them. While actions I’ve pushed for have meant forced installations are on pause, warrants aren’t being waved through and Ofgem is toughening up its reviews, our changes will make sure families aren’t penalised simply for how they heat their home.”

The change is expected to come into effect from July 1 through updates to the Energy Price Guarantee at a cost of £200 million. From April 2024, when the Energy Price Guarantee ends, the Chancellor has tasked energy regulator Ofgem to report back on additional regulatory options to permanently end the premium and bring fairness to bill payment methods in the long term.

The move is the latest government intervention to help families with their energy costs after the average family bill was cut by £1300 this Winter.