The Competition and Markets Authority has announced a draft of proposals that are the result of an 18-month investigation into the energy sector including the introduction of a price cap for households with pre-payment meters.
The proposals come after initial findings from the investigation suggested that energy providers had been overcharging customers to the tune of £1.7 billion (or £50 per customer) each year.
Early speculation suggested that the CMA may be calling for the introduction of a price cap for all standard tariffs but stopped short of this following pressure from within the industry.
Instead, they are proposing a cap on tariffs for households who get their energy using pre-payment meters which will benefit 16% of the UK’s consumers.
Another major proposal involves creating a database for what the report calls “disengaged domestic customers” – i.e. those who have been on standard variable tariffs for three years or more.
Tackling overcharging starts, for many, in moving from an energy provider’s ‘standard tariff’, the most expensive plans they have on offer. The difference between the annual cost of a provider’s standard variable tariff and their cheapest plans typically stands at around £250-£300. Currently around 70% of all customers with any of the Big Six providers are on default or standard tariffs.
Apathy with regard to switching, often borne of a lack of understanding that cheaper deals are available or from basic (and understandable) negligence, is to blame for a large part of what can be described as overcharging from energy suppliers.
The CMA’s proposal is to create this database with the basic details of all customers who have been on standard tariffs for three years and to allow all of the UK’s 37 energy suppliers to access it. The idea is that competitors can then contact “disengaged domestic customers” with better offers, promoting switching.
However, some are worried that the database may simply result in thousands of customers being bombarded with offers that are difficult to distinguish from unsolicited spam.
Money Saving Expert founder Martin Lewis made this very point.
He said: “the great worry is that people will be bombarded with what feels like spam from so many companies, the message will be drowned out by shouting.”
The CMA has acknowledged that “there is a trade-off between the benefits of liberalising channels of engagement and the need to protect customers from excessive and/or misleading marketing.”
It argued that the potential gains in terms of improved competitiveness outweigh the potential downsides.
The report says: “In relation to the Database remedy, we recognise that any proposal to free up access to customer data may be controversial, but we believe that such measures are necessary if customers who have not engaged for years are to consider switching in the future. We propose to put in place safeguards to ensure that such data is used appropriately.”
Further, customers will be able to opt out of having their details readily available – those who have been on standard tariffs for three years will be sent a letter letting them know about the database.
The “Database remedy” is part of a general drive to “harness the incentives of TPIs [third party intermediaries, such as price comparison websites] and rival suppliers to unlock customer engagement, by giving them greater access to the data they need to perform this role more effectively and at lower cost.”
This focus on empowering TPIs and PCWs (price comparison websites) marks a new shift in the methods used to promote switching and fight systematic overcharging. This comes after switching rates have been far lower than the CMA anticipated following previous interventions which, with “little attempt to systematically test hypotheses”, they say, have ultimately failed to truly boost customer engagement.
The report also addressed issues that some have raised with bias on the part of comparison sites showing tariffs that earn them commission rather than all tariffs on the market.
“We are aware of the concerns around trust that led to the Confidence Code requirement that PCWs list all tariffs on the market rather than just those for which they earn a commission. We believe that such concerns around trust can be addressed – without undermining TPIs’ incentives to engage customers – in two ways.
“First, there should be greater clarity around the role of PCWs – effectively acting as brokers offering customers good deals and facilitating switches rather than repositories of all available tariffs. Second, we considered recommending that Ofgem establish a non-transactional PCW listing all tariffs. We note, however, that Citizens Advice is now operating a non- 25 transactional PCW which lists all tariffs through a web-based service, which we believe will meet the needs of those customers who wish to see the whole of the market (and therefore do not propose to pursue a recommendation that Ofgem provide such a service).”
