One year ago, Energy Secretary Amber Rudd wrote to the Big Six to demand why hard-pressed consumers weren’t seeing bigger reductions in their gas and electricity bills.
Fresh to her role in charge of the Department for Energy and Climate Change, she challenged suppliers to explain why they had failed to pass on significant wholesale price reductions to customers sooner. Her message was clear: the energy industry needed to do more to regain consumers’ trust and cut prices.
So, what’s happened since?
In terms of bills, not enough. Wholesale gas and electricity prices have fallen by a third and a quarter, respectively, in the past year. Yet the 70 per cent of customers on so-called standard variable tariffs have experienced a reduction of just 2.7 per cent, or a mere £30, over the same time period.
On the other hand, competition between suppliers on fixed rate tariffs continues to be fierce. Deals have plummeted a staggering 11 per cent in the last year, with suppliers large and small battling to take the top spot in the best buy tables.
So the challenge is – how do we get more people engaging with the market to put far greater pressure on suppliers to lower prices and improve customer service?
The Competition and Markets Authority’s (CMA) energy market investigation, due to end later this month, should be a game changer. The CMA is right to conclude that better competition is the best way to transform the broken energy market. Its final reforms will be a major step in the right direction, but consumers may not see an immediate benefit.
That’s why regulators, the Government and industry must work together to implement the CMA’s final proposals quickly. It’s encouraging to see some changes already starting to happen. For example, Ofgem is allowing suppliers to develop innovative new tariffs, as well as working up proposals to redesign energy bills to make them easier to understand.
But a more competitive market won’t help everyone, especially the most vulnerable. Around 4.7m households in the country are spending ten per cent or more of their annual income on energy – with over 350,000 of those in London. That’s why uSwitch is calling on the Government to extend the Warm Home Discount, a £140 electricity rebate for those eligible, to all energy suppliers – as well as increase the pot of money available to help more of those in need.
The success of the CMA’s final proposals must be properly evaluated as they are implemented. Switching rates are a strong indicator of competition and ambitious targets should be set to monitor those changing suppliers, tariffs and comparing deals. Increasing switching rates between suppliers to just 25% a year by 2020 would transform competition in the market, driving down prices and improving customer service.
The past year may have seen little impact for energy consumers but, with the CMA’s final report just around the corner, the next 12 months are set to see some of the biggest changes in the industry in over a decade. What’s vital is that these reforms lead to millions more consumers taking control of their energy use and spend.