We have a problem with the way the energy market operates here in the United Kingdom. Households have seen gas and electricity bills rise significantly over recent years, but even though there are significant savings to be made, the majority are failing to take advantage of this.
The ‘big six’ suppliers still control more than 90 per cent of the market, despite the fact energy bills are at a record high and cheaper alternatives exist. Latest figures from Ofgem, the regulator, show that around 60 per cent of households have never switched energy provider and as in many industries, there is no reward for loyalty. The customers that have stayed put and done nothing are being charged the highest prices for their gas and electricity.
But it is not only customer apathy that is the problem with the energy market. Pricing concerns, a lack of transparency and questions about how well competition is working have resulted in the current investigation by the Competition and Markets Authority.
Clearly though, when competition exists, but six companies dominate and most households have never changed energy provider, the market is broken. So what are the barriers that need to be overcome in order to get this market functioning effectively?
This is something we have done a lot of work on at MoneySuperMarket and a number of key themes have been identified which help explain the problems that need tackling. Here is a look in more detail at a couple of the main ones:
There is no benefit in switching
The perception among consumers that there is no benefit in switching energy provider is a very real issue. In a recent survey carried out for MoneySuperMarket by YouGov, this was the main reason given by people who have not changed energy supplier in the past two years.
Energy bills have gone up by 15.6 per cent over this time, adding £195 to the annual cost for the typical household. Yet 32 per cent of people said they saw no point in switching because prices will only go up regardless of which provider they are with. A further 30 per cent said there was no benefit in switching because all providers are the same.
This highlights an education and awareness issue because there is a benefit to switching. Most of those who have never changed supplier will be paying their provider’s standard prices, which, unsurprisingly, are the most expensive. A British Gas customer, for example, could knock an average of £202 off their annual gas and electricity bill by switching to Extra Energy’s Fresh Fixed Price October 2015 tariff.
What is more, the 10 cheapest tariffs currently available are fixed deals enabling people to switch and protect themselves from potential future price hikes.
So what can we do to tackle this?
There is therefore still a big job for consumer groups, providers, politicians, comparison sites and the media to do to improve awareness of the benefits of switching energy tariff.
We also need to think about how to better promote the fact that choice exists beyond the ‘big six’ and to reassure people who are nervous about moving to a lesser-known brand.
Switching is too much hassle
Another barrier is the fact that many consumers still think moving energy provider is difficult. Believe it or not, some are under the impression that it will mean having their driveway dug up so new pipes can be installed. In reality, switching should be straight forward and hassle-free for the customer because all the work is done behind the scenes by the new provider.
It literally takes less than 10 minutes to run an energy quote on a comparison site and identify which tariff is the best for your circumstances. In most cases, the individual can then click through and apply. They will then be asked to supply a meter reading on a given date so the switch can be completed.
At the moment, it takes between four and six weeks for a switch to take place. There are plans to speed this up and by the end of the year, the switching process will take just three days, but this does not kick in until the 14-day cooling off period has ended so in effect it will still take two and a half weeks. This is obviously better than is the case at the moment, but more could be done to improve it further and give people the confidence that changing energy provider is not difficult.
So what can we do to tackle this?
Again, education is an important factor but lessons could also be taken from the current account market to speed up the switching process further. A switching guarantee should be adopted by the industry to help reassure consumers that it is not as much hassle as many perceive it to be.
It is also ludicrous that the switching process does not begin until the cooling off period has finished – surely one of the main points of a cooling off period is to give people the chance to change their mind if something goes wrong or they are not happy with the service from a new provider? We could therefore reduce the switching time further if the process and cooling off period began at the point an application is accepted by a new provider.
Switching could also be made easier for those who do not have internet access. If you are confident about using the internet, it is straightforward to identify which energy deal is the best for you, but if you are not, it is not as straight forward. And often it is those who could benefit most from cheaper energy bills, such as the elderly and low income households, that are excluded. Taking switching out into local communities and offering help and support to those who cannot do the research themselves would help more people benefit from lower bills.
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Clare Francis is editor-in-chief of MoneySuperMarket
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Clare Francis will be speaking at a Progress event taking place at Labour party conference next week
Consumers and the energy market: What’s Labour’s offer beyond the freeze?
12.45-2pm, Sunday 21 September 2014
Lancashire Room, Peter House, Oxford Street, Manchester, M1 5AN
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Photo: Ewan Munro