Energy Prices
Per kWh, the cost of electricity has been steadily rising for over a decade, but this has been offset by the fact that we are now using less energy as a result of improved appliance efficiency standards, and the average bill has stayed about the same.[1]
Over the past few years, the Big Six have been repeatedly accused of profiteering and price fixing, and the Competition and Markets Authority (CMA) spent two years investigating the sector between 2014 and 2016. Eventually, however, it did not find evidence of price fixing, and back-peddled on previous claims about how much the Big Six had been overcharging customers.
Many people have called the investigation a whitewash. The CMA agrees that the smaller suppliers generally charge substantially less. This is rather odd considering that, in most cases, the product is basically identical, and you would expect the Big Six to also be benefiting from economies of scale. So there surely must be something going on.
You are probably paying more than you need to
What the CMA did say unequivocally was that many people are paying far more than they need to. Differences between tariffs can amount to 20% of an average bill. This is quite a new development, and many people may not yet have caught on that they can save a substantial amount of money by shopping around.
Companies must now produce a Tariff Information Label and a Tariff Comparison Rate to allow customers to see key information about their tariff and compare it with others. This should mean that finding the best deal is easier, however, watch out for price hikes in year two.
You’re unlikely to be losing customer service by switching to a cheaper tariff. The CMA say, “we have seen no evidence to suggest that suppliers offering the cheapest tariffs have worse quality of service than those offering more expensive tariffs”.
The whole thing also has large social justice implications. The CMA found that those who don’t switch are likely to be people who are struggling financially, without qualifications, over 65, on low incomes, living in social housing, disabled, or single parents.
They also found that the people who would gain the most from switching, those who are currently paying the highest prices, tend to be those with incomes below £18,000, in rented accommodation, or in receipt of a Warm Home Discount rebate. In other words, the energy companies are milking the most vulnerable members of society.
Addressing the social issues around bills
A few companies are explicitly trying to address the anti-poor nature of the gas and electricity market. Ebico, a tiny supplier with Christian roots, charges all its customers the same price regardless of how they pay, meaning that it uses the extra income from direct debit customers to keep down prices for pre-pay and quarterly consumers, who are generally the poorest.
Robin Hood Energy makes a point of saying that it does not switch customers onto expensive tariffs when their old contract expires, as the Big Six often do. And the companies which have only one tariff, such as Ecotricity, can’t do this anyway.
In terms of the wider issues, you could argue that the level of concern about energy bills is an argument for prioritising investment in the cheapest renewables, as they give the biggest bang for their buck. However, low-carbon policies, including subsidies and carbon taxes, currently only account for about 9% of an average energy bill, while, as described above, the difference between different tariffs can itself amount to 20%. In other words, it is not low-carbon policies that are the cause of fuel poverty.
