‘Sticky’ customers who don’t shop around are subsidising the cheapest tariff prices
Millions of families are paying up to £330 a year more for their gas and electricity than neighbours who consume the same amount, because of anti-competitive practices by the country’s biggest suppliers, research has found.
The findings – after a week in which Centrica, the owner of British Gas, posted record profits of £2.4bn – will increase the pressure on ministers and the energy regulator, Ofgem, to act to ensure that all customers are offered the cheapest available tariffs.
The study, by the IPPR thinktank, found that as many as 5.6 million people are probably being overcharged as a result of pricing policies by the big companies which, it believes, prevent new companies from gaining a foothold.
It says that leading companies lure new customers – and those who take the trouble to switch suppliers – with “loss-leading” offers that are paid for by stinging longer-term customers with unfairly high tariffs. The IPPR says that the result is that neighbours who use the same amount of energy pay very different sums, while the big companies maintain their position unthreatened by new entrants into the field.
Customers on a “standard credit account” (paying in arrears) and who are unlikely to switch tariff or supplier are most likely to be paying over the odds. More than 60% of all households have never switched their energy supplier.
IPPR tested tariffs for British Gas, EDF, E.On, Npower, Scottish Power and SSE for three different payment types, using a price comparison website for properties in London, Sheffield, Dumfries and Aberystwyth. Scottish Power was found to offer the greatest differential between its standard and cheapest tariff: £339 in Sheffield, with London second-highest with £333. The gap at Npower was up to £315 and up to £229 at E.On. British Gas, SSE and EDF had figures of up to £126, £100 and £86 respectively. The thinktank found the difference in the tariffs offered could not be justified solely by the cost of different payment methods.
Pressure is growing on Ofgem from the Labour leader, Ed Miliband, and leading figures in the coalition to do more to remove anti-competitive practices in the energy market.
Nick Pearce, the IPPR’s director, said: “At a time when living standards are falling in real terms and more families are finding it hard to pay their energy bills, it is unacceptable that people are being overcharged for their energy use.
“The loss-leading by some suppliers is limiting competition in the energy market by making it harder for small suppliers and new entrants to compete. Ninety-nine per cent of energy customers get their energy from the ‘big six’ energy companies. Energy companies need stability in the energy market regulatory structure and the tax regime they face. But in return they need to operate in a properly competitive marketplace that is fair to all their customers.”
The study found that the “stickiest” customers are those who have changed neither supplier nor tariff payment type since the market was opened to competition two decades ago.
According to Ofgem, 16.5 million of the UK’s energy customers have been with the same supplier since before the liberalisation of the energy market. At the close of 2007, the proportion of energy customers on standard credit accounts was 40%, down 1.5% on the previous year. The IPPR suggests that 34% of people are currently on standard credit accounts.
The IPPR says that Ofgem must enforce the licensing requirements it has introduced to ensure tariffs are “cost-reflective” and investigate introducing fines for suppliers that are in breach of the rules.
Last month Miliband said that a Labour government would champion those being fleeced by the big firms. He said that he would force energy firms to cut bills for four million pensioners by automatically putting all people over 75 on the lowest tariff. This would save pensioner households £200 a year.
The new energy secretary, Ed Davey, who took over this month following the resignation of fellow Lib Dem Chris Huhne, said that he would make cutting energy bills a priority. “I’ve now got to take up the challenges, the challenge of climate change, of energy security and I’m particularly conscious of the impact on consumer households across the country of high energy bills,” he said.
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