In a summary of its provisional findings, the Competition and Markets Authority (CMA) has highlighted a range of problems that hinder competition in the energy market.
Issues include shortcomings in regulation, widespread consumer disengagement and concerns over whether change could be delivered across the market.
The average household currently spends about £1,200 on energy each year. This means that, for the poorest 10% of households, energy bills now account for about 10% of total expenditure.
But widespread consumer disengagement is stopping the market from functioning properly. An extensive survey of 7,000 people in Great Britain found that over 34% of respondents had never considering switching provider.
‘For the poorest 10%, energy bills make up nearly a tenth of their total spending. So as well as helping customers become more active we want to consider carefully whether some sort of protection is warranted whilst other changes take effect. We wouldn’t introduce such a move lightly and would need to consider its effect on competition but it is something we feel is right to look at closely.’
Roger Witcomb, Chairman of the energy market investigation
The report has found that dual fuel customers could save an average of £160 a year by switching to a cheaper deal. About 70% of customers are currently on the ‘default’ standard variable tariff (SVT), despite the presence of generally cheaper fixed-rate deals.
Lack of awareness of what deals are available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers all deter switching – and the higher price levels reflect that suppliers can charge higher prices to these disengaged customers.
Regulatory interventions designed to simplify prices, such as the ‘four-tariff rule’, aren’t having the desired effect of increasing engagement – yet they have succeeded in limiting discounting and reducing competition.
Instead, the CMA is proposing that the regulatory approach to the retail market should be based on clear principles that allow the benefits of competition to be realised.
Millions are paying too much
The CMA also believes measures such as smart metres should be encouraged to increase engagement, and that disengaged consumers should be targeted and prompted to shop around.