The first update since the Competition and Markets Authority (CMA) launched its initial report and subsequent investigation into the energy market has proved what many have been saying for a long time: households that remain loyal to their supplier by not switching end up overpaying by hundreds per year.
Big six ‘dominate’
Back in July 2014, the CMA released a report stating that energy prices, the dominance of the big six and lack of competitiveness were their top issues of concern. They also stated that they planned to look at energy bills, service quality and profitability.
At this time, the CMA also stated its theories on which factors were harming the industry, including lack of transparency, “vertically integrated electricity companies” and lack of consumer engagement and switching — the latter meaning the supplier would not be incentivised to compete on price.
Loyal customers punished
Seven months into the 18-month-long investigation has found that more than 90% of UK homes are on energy plans from the big six (British Gas, SSE, EDF Energy, ScottishPower, npower and E.ON), simply because these six companies “inherited” these customers when the industry was privatised in 1995. The CMA update refers to these as customers as “sticky”.
Further, 95% of those consumers who have been with the same supplier for some time could have saved between £158 and £234 per year if they had switched.
This is a particular issues for the most vulnerable of customers, including the elderly, who view switching as “impossible.”
But the elderly were not the only consumers losing out; the CMA found that those customers most likely to be on expensive standard tariffs were less educated, were on lower income, singles parents, and did not necessarily have access to the Internet.
Switching has ‘hit rock bottom’
Ann Robinson, uSwitch.com Director of Consumer Policy, says of the CMA’s update:
“The number of people switching supplier has hit rock bottom and so the key to the outcome of this investigation will be how to increase levels of consumer engagement in the market. If more of us shopped around, suppliers would have to up their game through lower prices and better customer service to attract and retain customers.
“We also welcome the CMA’s scrutiny of Ofgem’s retail market review and believe that more can be done in the here and now to help more consumers engage with the market. For example, Ofgem should review the effectiveness of annual energy statements and whether more could be done to make bills easier to understand.”
Breaking up the big six?
As the CMA investigation will continue, and the question remains whether the watchdog will advise breaking up the big six energy suppliers over abuse of power.
Energy Minister Ed Davey has stated that if this is the case, he would not hesitate to take action:
“If the evidence from the CMA is strong that the next step ought to be breaking up a company, if the Competition Markets Authority recommend that, certainly I as a Liberal Democrat, talking to the voters in the next election, will make it clear, we would not flinch from taking that tough action.”