Millions of households are "paying too much" for energy, a year-long investigation has revealed today. But MoneySavingExpert.com has been saying for years that households could save hundreds by switching.
The Competition and Markets Authority (CMA) found that of 7,000 people surveyed, 34% had never considered switching supplier, while about 70% of customers are currently on an expensive standard variable tariff.
The CMA adds that the average household currently spends about £1,200 on energy each year – figures we have always quoted when encouraging energy switching.
Electricity prices have risen by about 75% and gas prices by about 125% in the last 10 years. For the poorest 10% of households, energy bills now account for about 10% of total expenditure.
But the report also found that dual fuel customers could save an average of £160/year by switching to a cheaper deal – something which MoneySavingExpert.com has been saying for years. Join our free, Cheap Energy Club to see if you can cut costs.
'The CMA is telling consumers to get up off their backsides and switch'
Martin Lewis, founder and editor of MoneySavingExpert.com, says: "The CMA is, in polite language, telling consumers to get up off their backsides and switch. The problem isn't just that people don't switch but the fact that many cheap tariffs only last a year or so, so they don't switch often enough.
"None of this is new, nor does it take a year to discover it, I've been ranting about it for at least a decade. The stats are pretty startling though, someone with typical usage on a big six standard tariff with a monthly direct debit right now pays around £1,160/year, if they switched to the cheapest tariff it'd be around £870/year.
"Yet there's a bigger underlying issue here. The CMA has talked about the most effective remedy being competition, and castigated energy firms for overcharging and the system for not allowing competition to work properly.
"Yet if you want competition then you have to have big price differences between the most expensive and the cheapest otherwise nobody will bother to switch, and if you do that you have winners and losers.
"The losers tend to be the poorest in society. This is why we have the disgraceful situation that a struggling 90-year-old grandmother who can't use the internet pays more than I do to boil a kettle. You cannot fix that with competition, and I still don't see very many solutions being put forward on it."
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Why are people still paying too much?
The CMA says a lack of awareness about what deals are available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers all deter switching.
A lack of transparency is also "hampering trust" in the sector.
It adds that interventions by regulator Ofgem designed to simplify prices, such as limiting suppliers to four-tariffs (see the Energy tariff reform MSE News story for more on this), are not having the desired effect of increasing engagement.
Instead, they have actually limited the discounts suppliers can offer and reduced competition.
What is the CMA going to do about it?
The CMA has outlined a number of possible changes to improve the market, which will now be consulted on. A final report is expected by the end of this year.
Key suggestions include:
- A price cap. The CMA will consider a transitional price cap on the most expensive tariffs until other measures have led to a more competitive market. However, as this is to be consulted, no maximum price has been set or a time-frame given.
- Getting rid of the 'four-tariff rule'. The CMA will consider allowing suppliers to offer as many tariffs as they like in a bid to increase competition.
- Prepayment customers should get smart meters first. Smart meters are being rolled out to the majority of households in the UK by 2020, but the CMA says they should be given to prepayment customers first. Smart meters are designed to provide accurate meter readings to help people track their energy use, making it easier for them to know if they could switch and save. Prepayment customers in particular are often the most disadvantaged, and typically pay more for their energy.
- Greater transparency. The CMA says there should be more effective communication about the impact of decisions on bills, and that it should be made clear what responsibilities the Department of Energy and Climate Change (DECC) and the regulator Ofgem have.
'Millions over-paying, but they don't have to'
Roger Witcomb, chairman of the energy market investigation, says: "There are millions of customers paying too much for their energy bills – but they don't have to."
He adds: "We've been able to shine a light on all the different areas of this market and identify which parts are working well and where the problems are.
"We now want to focus on what we can do to tackle the problems we have provisionally found."