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Millions to have energy bills slashed or capped

Paloma Kubiak
Written By:
Paloma Kubiak

Millions of households could see their energy bills cut or capped from 2017 following an industry watchdog’s bold reforms to increase competition in the market.

Following a two year investigation into the energy industry, the Competition and Markets Authority (CMA) has today published a list of remedies to plug the £1.7bn a year overpaid by customers.

Standard variable tariff customers

While many customers have switched to competitively priced fixed-term deals, around 70% of those with the ‘Big Six’ energy providers are still on the default standard variable tariff (SVT) which tends to be around £300 more expensive than the cheapest deal.

It said that the ‘Big Six’ suppliers – British Gas, EDF, E.on, Npower, Scottish Power and SSE are taking these customers “for granted”, not just over prices but with their service and quality.

As a result, the CMA is looking to create a database of ‘disengaged customers’ who’ve been on a SVT for more than three years to allow rival suppliers to target them to offer more competitive deals.

This would be controlled by the energy regulator – Ofgem – and would be “subject to strict safeguards” so that customers can opt out at any time.

Prepayment customers

It’s also proposing a temporary cap for the four million vulnerable prepayment customers who have fewer tariff choices which means they’re paying about £300 more than those on other tariffs.

The temporary price cap will remain in place until 2020, though the CMA hasn’t said what the actual figure will be, but it hopes to reduce these customers’ bills to the tune of £300m a year. It has also said it will “reduce the barriers” such as debt issues that often make it harder for them to switch.

Price comparison websites will also be given access to relevant customer information such as meter numbers and they’ll be given more power to negotiate exclusive deals with suppliers.

But the comparison sites will need to be transparent about how they cover the market and the information they display after a collective switch site The Big Deal attacked them in 2014, stating they hide tariffs and show the deals in which they earn commission on.

One further remedy proposed by the CMA is to remove the ‘four tariff rule’ which was only implemented in 2014 as it “limits competition and innovation” rather than have the desired effect of making energy tariffs simpler.

Bold moves to transform the energy sector

Roger Witcomb, chairman of the energy market investigation, said: “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.

“We think that this coherent and comprehensive package of reforms to address the problems we’ve found – including those which whilst less evident to customers can still have a huge impact on bills – will help transform the energy sector so that all customers benefit.”

The CMA has until 26 December 2016 to compile the final remedies and they must come into place from 1 April 2017.

Backward step

Hannah Maundrell, editor in chief of money.co.uk, said: “It seems crazy the CMA’s big solution to fix the broken energy market is to add customers stuck on a standard tariff to a marketing database for other suppliers to poach. It feels like a backward step when we really need to move the stagnating industry forward.

“This is a step in the right direction but I’m disappointed the CMA hasn’t gone further. The key issue is that most people have been paying too much for energy. It’s a shame none of the £1.7bn we’ve been overpaying a year hasn’t been pushed back into customers’ pockets.”