Government plans to cut difference in energy tariffs

LONDON (Reuters) - The government will announce on Wednesday plans to reduce how much households on prepaid meters spend on power and gas in a bid to reduce fuel poverty, a government source told Reuters on Monday.

Chancellor Alistair Darling will use his first budget to announce plans to narrow the gap between rates charged for energy on prepaid meters and cheaper direct debit deals, after rejecting other proposals to help those least able to pay.

Some power companies charge prepaying customers hundreds of pounds more than those paying by direct debit because of the higher costs associated with them.

But according to energy regulator Ofgem, most pre-payment meter users are not classed as fuel poor -- spending more than a tenth of their income to light and heat their homes.

"About 80 percent of customers on pre-payment meters are not classed as fuel poor," a spokesman for Ofgem said, adding that many of the poorest customers paid by direct debit.

The government plans follow consultation last week with energy companies where several measures, including windfall taxes and a voucher system, were put forward to help poorer families struggling to cope with rising utility bills.

The prepayment meter plan was slammed by Centrica, which as the owner of British Gas is Britain's biggest energy supplier.

"There is a worrying tendency towards short term fiscal interventions... even price controls for some groups of customers," chief executive Sam Laidlaw told a utilities conference in London on Monday.

"Domestically the government needs to deal with the long term causes of price volatility, the wholesale price, rather than seeking to intervene in the highly competitive retail market in a misguided attempt to curb the symptoms of rising retail prices."