Around four million households on pre-payment meters will see their energy bills cut and providers will have to share customer data to allow rivals to offer better deals under proposals announced by the Competition and Markets Authority (CMA).
The CMA said that British households could currently be overpaying by around £1.7billion a year.
Research by Turn2us last year found that one in two low income households are struggling to afford their energy costs, despite being in work. Amongst the hardest hit are people with disabilities, with over two in three (67%) reporting their struggles, and families, with almost two-thirds of working parents (65%) unable to meet these costs.
In the long-awaited report, the CMA said it wants to set a temporary price cap for low income and vulnerable customers who have pre-payment meters, and plans to launch an Ofgem controlled database allowing rival suppliers to offer better deals to those who have been on standard variable rates for three years or more.
All of the ‘Big Six’ energy suppliers have announced price cuts in recent weeks as they pass on some of the dramatic falls in wholesale costs to customers. However the CMA warned that even after the cuts ranging from 5 to 5.4%, households are still considerably overpaying for energy.
Many domestic customers being taken for granted
Roger Whitcomb, Chairman of the energy market investigation said: “We have found that the six largest suppliers have learned to take many of their existing domestic customers - some 70% of whom are on ‘default’ standard variable tariffs –for granted, not just over prices, but with their service and quality.”
The investigation also found that customers on prepayment meters, a group which contains some of the most vulnerable customers had far more limited options.
Mr Whitcomb said: “It’s more difficult for their suppliers to compete, more difficult for such customers to switch, and they have far fewer tariff choices. Energy is both an essential and expensive item for many of these four million households, whose cheapest tariffs are around £300 more expensive than for other customers. That is why we are proposing a transactional price control for them which will remain in place until 2020, by which time they too will be able to benefit from other future developments like roll-out of smart meters.”
‘Not in the best interest of vulnerable customers’
Charities, independent power companies and MPs have warned that the investigation will do little to stop householders paying £1.7bn a year too much for their energy. Ovo Energy, an energy supplier went as far as calling the last 18 months of the CMA investigation “a complete waste of time.”
During a debate in Parliament on the UK energy market, Julian Knight MP admitted there had been progress but said it had only been among empowered customers.
He said: “The most vulnerable customers – such as people on fixed incomes, pensioners and those who live in the poorest housing, are unemployed, have mental illness are sometimes the least able to advocate for themselves.”
He added: “The behaviour of the big six energy companies seemed to remain unchanged, profoundly uncompetitive and certainly not in the best interests of vulnerable customers.”
‘Energy companies are still being left off the hook’
Lisa Nandy, Shadow Secretary of State for Energy and Climate Change said: “This investigation has confirmed that millions of families and businesses have been overcharged for their energy bills to the tune of billions of pounds yet energy companies are still being left off the hook.
“This was a critical chance to shake up a broken energy market and make sure savings from falling wholesale prices are passed onto customers. Only more transparency and competition can deliver this.”
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Source: CMA press release - CMA sets out energy market change
Hansard - UK energy market debate