Big six energy suppliers overcharge seven in ten households

Tom Wilson
10 March 2016

The Competition and Markets Authority (CMA) found that those who don’t switch are typically being overcharged £300/year, compared to the best deals.

“We have found that the six largest suppliers have learned to take many of their existing domestic customers – some 70% of whom are on ‘default’ standard variable tariffs – for granted, not just over prices, but with their service and quality,” says Roger Witcomb, chairman of the CMA investigation.

“Yet in those parts of the retail markets where competition is working, customers are benefiting to the tune of hundreds of pounds a year by switching.”

The CMA’s final report, due in June, will introduce new measures to shake up the market, and make sure more households can cut their bills through effective competition.

Read Energy supplier complaints "still too high".

What action will the regulator take?

The CMA has proposed a series of measures, to address several separate but related issues:

  • Getting more people switching


The CMA has proposed creating a database of ‘sticky’ customers who have not switched tariff for three or more years. Other suppliers will use their database to offer tempting tariffs that will get more people switching.

However, given the rise of claims management companies, there’s a risk this could lead to a lot of spam from predatory middlemen. High profile data breaches also suggest this could put customers’ information in the hands of fraudsters.

The CMA says there will be strict safeguards to protect against these risks, with opt-out rights for consumers, and checks and balances on how the database can be used.

  • Putting a price cap on prepaid tariffs


The competition watchdog has proposed a temporary price cap for customers on pre-paid tariffs, who are typically charged more for their energy. This is despite, or perhaps because, they are more likely to be vulnerable and less likely to understand their bill.

This price cap would provisionally be in place until 2020, at which point other initiatives, such as smart meters and improved comparison site services, will help people understand their bills.

The CMA says four million people are on pre-paid tariffs, and that this action could save them £300 million collectively.

  • Smarter comparison sites


Improved data-sharing between customers and comparison sites can help customers find better deals tailored to their actual, rather than estimated, usage. These might be based on information sharing using customers’ meter numbers, or information collected through smart meters, which measure when energy is used, and not just how much.

The collective bargaining power of consumers using comparison sites could also lead to sites negotiating better exclusive rates for customers, according to the CMA.

  • Industry and regulatory changes


The CMA has propsed for the end of industry ‘self-regulation’, giving regulator Ofgem more power to force suppliers to promptly take action to benefit consumers.

It will also look at the cost of regulation and green-tariffs, as these are expected to make up more than a third of household electricity bills by 2020.

  • Ending the ‘four-tariff rule’


Currently energy providers are restricted to offering no more than four tariffs – a move that was intended to simplify the market and stop customers getting bamboozled by thousands of hard-to-compare options.

But the CMA claims that removing this cap will encourage innovation and competition.

What won’t it be doing?

The CMA has ruled out a price cap on standard variable tariffs, as it believes “more substantial benefit for households and microbusinesses will come from making competition work better”.

It notes there are plenty of competitive deals on the market, and the challenge is getting people to switch to them. It’s also arguable that a price cap would lead to suppliers charging as much as they possibly can.

‘Important step to making the market fairer’

Dermot Nolan, chief executive of Ofgem, says: “The CMA’s provisional decision on remedies is an important step towards making the market more competitive and fairer for consumers, especially the vulnerable.

“The proposed safeguard cap for pre-payment meters (PPMs) combines with our work to remove unnecessary fees for PPMs and to make it easier for these consumers to switch.”

But Richard Lloyd, executive director of consumer group Which?, says there’s still a long way to go. "After two years of this energy inquiry, there is still a long way to go before we will have an energy market that works for all consumers.

"While it is right to ensure that vulnerable customers on pre-paid meters are quickly protected, there are many people struggling with their bills who will not be helped by this price cap.

You can use our energy comparison tool to find the best deal for you.

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