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Energy customers have been paying £1.7bn too much

Energy customers have been paying £1.7bn too much

Category: Gas and electricity

Updated: 15/03/2016
First Published: 10/03/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Competition and Markets Authority (CMA) has released the provisional results of its investigation into competition in the gas and electricity sector, and it appears to confirm what many of us already feared – that the majority of consumers are paying far too much for their gas and electricity supply.

The findings

The CMA found that, although competition has benefited customers who have switched to competitively priced fixed-term deals, it hasn't helped the 70% of domestic customers who remain on the more expensive standard variable tariffs (SVTs).

These are the default tariffs that people will often be switched onto once the fixed term of a contract comes to an end, but it could be costing them dearly – CMA's analysis shows that the average customer could save £300 by switching to a cheaper deal, which means that, in total, customers could have been paying £1.7 billion a year more than they would have done in a competitive market.

The recommendations

As a result, the CMA has set out a comprehensive and wide-ranging package of remedies to address the problems that are hindering competition, with the proposals aimed directly at customers to "help and encourage a greater number to benefit from switching to more competitively priced deals".

The measures include the creation of a database of customers (controlled by industry regulator Ofgem) who have been on their standard tariff for more than three years, to allow rival suppliers to target their marketing to those customers and potentially encourage them to switch to a better deal. It'll strengthen the ability for price comparison websites to help customers find better deals, and a temporary safeguard price control could also be implemented to protect those on prepayment meters, where options are more limited. This, in itself, could reduce these customers' bills by a total of £300 million a year, says the CMA.

More behind-the-scenes changes could be implemented, too, which although probably not visible to consumers, could still have the effect of improving competition and the market overall. For example, the CMA is proposing "extensive measures to reset the relationship between Ofgem, the Department of Energy and Climate Change (DECC) and the industry" to ensure that decisions are made efficiently, and that the system of self-regulation of industry codes changes, so that Ofgem is better able to ensure that measures to benefit consumers are introduced promptly.

"We have found that the six largest suppliers have learned to take many of their existing domestic customers for granted, not just over prices, but with their service and quality," said Roger Witcomb, chairman of the energy market 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. We're proposing a wide range of bold, innovative measures to enable competition to grow further across the market so that millions more households will benefit."

Get a better deal!

The measures we've outlined above are just a few of the proposals, and they have yet to be finalised; the CMA hopes to introduce them following the conclusion of its investigation in June, and a consultation period will take place between now and then. Nonetheless, it's hoped that the measures will at least go some way to giving energy customers a fairer deal, but don't wait for these measures to come to fruition – be proactive and save!

By comparing energy tariffs you could find a better deal right now, and as the figures show, if you switch from a variable tariff to a fixed rate deal, you could save as much as £300! So, don't let apathy get in the way of some fantastic cost savings – use our search tool to see if you could cut your energy bills down to size.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.