Competition between household energy suppliers is not working properly for “the majority” of consumers, the Government’s markets watchdog has warned.
The Competition and Markets Authority, set up under the Coalition, has completed a year-long inquiry into energy bills.
The watchdog said that the simple fact that people generally do not ‘shop around’ for basic utilities meant they generally did not benefit from competition in the market.
The CMA also blamed shortcomings in regulation and the confusing way energy is priced.
Five questions on: The 'big six' energy suppliers
Big Six energy companies overcharging customers
It found that tariffs offered by the so-called ‘Big Six’ energy suppliers were around 5 per cent higher than they should be between 2009 and 2013.
Roger Witcomb, chair of the energy market investigation, said energy suppliers have no incentive to improve.
“Whilst competition is delivering benefits to increasing numbers of customers, mainly through the growth of smaller suppliers with cheaper fixed-price deals, the majority of us are still on more expensive default tariffs,” he said.
Comparison of comparison sites
Comparison of comparison sites
1/5 COMPARE THE MEERKAT
ANNUAL TURNOVER: £413.87m (BGL group) FOUNDED: Established by Budget Group in 2006, and made famous by its Compare the Meerkat adverts, featuring Aleksandr Orlov and his Russian meerkat family. RESPONSE: “Suppliers sometimes stipulate which tariffs they wish to sell on price comparison websites. Also, tariffs that are not in the main search engine could belong to new suppliers who are just soft launching their services and don’t want too much volume yet.”
2/5 GO COMPARE
ANNUAL TURNOVER: £109.9m FOUNDED: Boasts an Italian opera singer known as Gio Compario (played by Welsh tenor Wynne Evans) as its mascot. The company is 49 per cent owned by esure. RESPONSE: “The Big Deal’s findings just don’t stack up. We help consumers compare over 150 tariffs and make it clear on our results screen that there are more tariffs available across the market and customers can view those tariffs without having to leave the results screen.”
ANNUAL TURNOVER: £34.32m FOUNDED: Founded by Lord Milford Haven in 2000, but since sold on to private equity. Adverts tend to be less gimmicky than rivals. RESPONSE: “Customers have the clear option to compare plans across the whole energy market on our site. We do not pre-select a default answer when giving them this choice, nor do we in any way influence what they should select.”
4/5 MONEY SUPERMARKET
ANNUAL TURNOVER: £225.6m FOUNDED: Launched online in 1999. Listed on the London Stock Exchange in 2007, valued at £843m. Bought Money Saving Expert advice site in 2012. RESPONSE: “The option for customers to filter results to see only products they can buy through MoneySuperMarket is displayed prominently, and is necessary as some providers choose not to offer some products through comparison websites. This adheres to Ofgem’s Confidence Code.”
ANNUAL TURNOVER: £82.7m FOUNDED: Owned by insurance firm Admiral. “I’m Confused.com” has become a household catchphrase. More recently, the company’s adverts feature Brian the friendly robot. RESPONSE: “Consumers using Confused.com are able to view every available tariff on the market through our comparison service. Some suppliers do not make certain tariffs available through comparison sites, so we give customers the option to exclude these from the results.”
“Many customers do not shop around to see if there’s a better deal out there – let alone switch. The confusing way energy is measured and billed can make comparing deals understandably daunting.
“The result is that some energy suppliers know they don’t have to work hard to keep these customers. It’s notable that there are such high levels of complaints about customer service.”
Until the 1990s electricity was supplied by the state-owned Central Electricity Generating Board, which was broken up into four companies and privatised.
The CMA recommended accelerating the roll-out of so-called smart meters to “increase engagement” amongst the majority of people who do not care which energy supplier they are on.
It also said it would consider whether a “transitional price cap on the most expensive tariffs” was necessary to protect consumers.
It stopped short of recommending the break-up of the ‘Big Six’ suppliers, however. These firms, British Gas, SSE, EDF Energy, RWE npower, E.ON and Scottish Power, hold the majority of the market.
Responding to the report, Secretary of State for Energy and Climate Change Amber Rudd said:
"Our priority is to keep bills down for hardworking families and businesses across the country. We'll consider the report and respond soon and we won't hesitate to take further action where the market is not delivering a fair deal for consumers – including doing more to support switching, ensure the swift roll-out of smart meters and increase competition in energy markets".
Under its former leader Ed Miliband, the Labour party pledged to freeze energy bills until 2017 if it won the election.
Last month the new Energy Secretary Amber Rudd wrote to the Big Energy suppliers and questioned whether their prices truly reflected their costs.