‘Disengaged’ domestic consumers pay too much for energy - CMA

Britain’s energy retailers have been criticised in provisional findings from the UK Competition and Markets Authority (CMA) after a year-long investigation into the energy market. ‘There are millions of customers paying too much for their energy bills – but they don’t have to,’ said Roger Witcomb, Chairman of the market investigation, although poor levels of customer engagement in the market are also responsible for its inefficient operation.

According to the CMA, the average household currently spends about £1,200 on energy each year. For the poorest 10% of households, energy bills account for about 10% of total expenditure. However, widespread consumer disengagement is impeding the proper functioning of the market. A survey of 7,000 people in Great Britain found that over 34% of respondents had never considering switching provider.

As a result, the report finds that dual fuel customers could save an average of £160 a year by switching to a cheaper deal, says the CMA. About 70% of customers are currently on the ‘default’ standard variable tariff (SVT) despite the presence of generally cheaper fixed-rate deals.

Lack of awareness of what deals are available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers all deter switching – and the higher price levels reflect the fact that suppliers can charge higher prices to these disengaged customers, adds the Authority.

Regulatory interventions designed to simplify prices, such as the current ‘four-tariff rule’, are not having the desired effect of increasing engagement, and have limited discounting and reduced competition. Instead the CMA proposes that the regulatory approach to the retail market should be based on clear principles that allow the benefits of competition to be gained and to promote measures, such as smart meters, that will increase engagement, while specifically targeting disengaged consumers to prompt them to shop around.

Alongside this, the CMA will also be considering whether safeguards such as a transitional price cap on the most expensive tariffs are needed to protect customers until other measures have led to a more competitive market.

Roger Witcomb, Chairman of the energy market investigation, said: ‘Whilst competition is delivering benefits to increasing numbers of customers, mainly through the growth of smaller suppliers with cheaper fixed-price deals, the majority of us are still on more expensive default tariffs. Many customers do not shop around to see if there’s a better deal out there – let alone switch. The confusing way energy is measured and billed can make comparing deals understandably daunting. The result is that some energy suppliers know they don’t have to work hard to keep these customers. It’s notable that there are such high levels of complaints about customer service.’

The CMA will now hold discussions with all interested parties on the findings and possible remedies as it moves to publish its final report by the end of the year. Before then it will also publish its provisional decision on remedies where it will indicate the measures and actions it intends to include in that final report.