Low-income households to get energy price cap in results of two-year CMA investigation

After a two year investigation the Competition and Markets Authority has finally taken action

Gas and electricity prices are to be temporarily capped for the UK’s four million poorest households on pre-payment meters.

Meanwhile a new database of customers who haven’t switched in three years will be made available to rival suppliers and comparison sites to encourage them to contact consumers paying over the odds for their energy.

The plans have been announced this morning by the Competition and Markets Authority after a two year investigation into the energy market.

“The six largest suppliers have learned to take many of their existing domestic customers – some 70 per cent of whom are on ‘default’ standard variable tariffs – for granted, not just over prices, but with their service and quality,” said Roger Witcomb, chairman of the CMA’s energy market investigation.

He claimed that allowing competing suppliers and price comparison websites to alert customers to the savings they can make “will shake up the industry”. The new database will be operated by energy Watchdog Ofgem to ensure impartiality.

For the 4million customers on prepayment meters, including some of the most vulnerable customers, a transitional price control – effectively a cap - will be introduced until 2020. After which they should be able to benefit from the best prices through the roll-out of smart meters.

Richard Lloyd, Which? executive director said: "After two years of this energy inquiry, there is still a long way to go before we will have an energy market that works for all consumers.”

He warned that there are many people struggling with their bills who will not be helped by the price cap. He added the regulator must make sure that releasing customer data to rival suppliers is done so that it genuinely helps people switch from the most expensive tariffs to better deals, rather than result in more unwanted nuisance calls.

Doug Stewart, chief executive of independent supplier Green Energy is also concerned about the growing problem of nuisance calls. “Bombarding potential customers with phone calls or direct mail will almost certainly switch them off the idea of changing energy company,” he warned.

Instead he said we need a proper fuel poverty strategy targeted at those most in need. “Radical thought may be required.  But simple thought means the focus on the price message has caused everyone to lose sight of the bigger savings, which could be as much as £200 a year through energy efficiency,”  he said.  

The main proposed measures to be introduced are:

  • An Ofgem-controlled database which will allow rival suppliers to contact domestic and microbusiness customers who have been stuck on their supplier’s default tariff for three years or more with better deals.
  • A transitional price control for the four million households who are on prepayment meters.
  • Strengthening the ability and incentives for third party intermediaries such as price comparison websites to help customers find better deals by giving them access to relevant information like customer meter numbers and allowing them to negotiate exclusive deals with suppliers.
  • Removing the 4 tariff rule which limits competition and innovation.
  • Removing restrictions on the ability of new suppliers to compete for prepayment customers and reduce barriers such as debt issues that make it difficult for such customers to switch.
  • A requirement that the approximately 700,000 households on non-Economy 7 restricted meters are allowed to switch to cheaper single-rate tariffs without requiring a meter replacement.

 

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