The least well-off pay the most for energy – Competition and Markets Authority

David SheridanElectricity & Gas, Money Saving

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Did you know that the Competitions and Markets Authority (CMA) have recently released the findings of their two year investigation into whether customers are getting a bad deal from energy providers? Probably not, as it was released on Friday June 24th, the same day as the result of the referendum on EU membership.

The timing of the release, on a day where it was sure to be overshadowed as a news story, may give a clue as to the outcome for consumers:

• Customers are on average overpaying £330 per year
• Pre-payment customers pay 12% more than they should compared with post-pay customers who pay 8% more

Whilst confirming that customers are typically getting a raw deal from their energy providers, the proposed remedies are a combination of sticking plasters and long term suggestions that won’t deliver prompt or significant savings for those who can least afford it.

The report confirms that customers of the big six energy providers, which makes up almost 90% of the UK energy market, routinely overpay by a massive £330 a year, by virtue of not moving to a more competitive tariff once their initial deals come to an end. This happens because after an initial contract period, most customers are automatically switched over to a much worse deal if they do nothing (known as a Standard Variable Tariff or an SVT). The fact that 70% of big six customers are on SVT’s demonstrates the extent of the problem, which equates to those people paying £2 billion more than they needed to during 2015 alone.

The CMA rejected claims from some energy providers that their customers proactively decide to stay on these more expensive deals, instead highlighting that although switching is easy, many consumers either just don’t consider doing so, or perceive it to be a lot of hassle.

The CMA have also confirmed that it’s those on the lowest incomes that are overpaying the most. Whilst the situation for post-payment customers on SVT’s could be cured if they were to engage with the benefits of switching and understand the ease of the process, the 16% of consumers on pre-payment meters are not so fortunate. Pre-payment meters are generally installed in instances of poor payment history or in certain types of rented accommodation, and can only support a limited number of tariffs. The outcome is that pre-pay customers don’t have access to a competitive range of deals, meaning they ultimately have to pay more than post-pay customers, whether they shop around or not. The report confirmed that the detriment suffered by pre-pay customers equates to 12% of a typical bill, as opposed to the 8% suffered by post-pay customers with direct debits set up.

Whilst around thirty remedies have been proposed to address the problems which are causing higher prices for consumers, two are of particular significance.

The main remedy being proposed by the CMA to combat a lack of engagement by post-pay customers is to allow rival suppliers to send postal communications, in the event that the customer has been on an SVT for at least three years. In respect of pre-payment consumers, the rollout of better infrastructure in the form of smart meters represents the long term solution to open up competition and provide better deals to those that need them most. These are scheduled to be fully in place by 2020. In the meantime, a pricing cap will be introduced from 2017, which will lead to a reduction in annual bills of around £75 per household per year.

David Sheridan is the CEO of Onedox, a free service designed to help consumers by automatically ensuring they have access to the best available energy deals. He said “Pre-pay customers should check with their supplier to see if they qualify to move to a post-pay deal. Many customers do qualify but don’t realise it, such as where they move into a property and a meter is already installed. Where customers use a pre-pay meter through preference or necessity, it’s important to be on the best tariff, as although options are limited, some choice is still available, which means lower costs. It’s obviously vital that the real solution – a level playing field for all customers, is put in place as soon as possible.

For post-pay customers, the advice is simple – make sure you never end up on a Standard Variable Tariff. If you are one of the millions of customers who are, you are wasting hundreds of pounds each year”.


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