Energy tariff surcharge trebles over three years

Published Tue 25 Mar 2014
Gas customers who haven't switched pay up to £90 more than customers who have.

Energy companies charge substantially more to the customers that they have retained from their time as monopoly suppliers, compared with customers who have switched, according to new analysis by think tank IPPR. The new analysis is revealed ahead of a government-commissioned report into competition in the energy markets that is expected to be published this week.

IPPR's analysis shows:

  • Electricity bills in 2013 for customers who have not switched supplier since the market was opened to competition are on average £27 higher than for customers who have switched. The disparity in prices is greatest for those customers who pay their energy bills by standard credit, with a difference of £29 between those who have and haven't switched.
  • Gas bills in 2013 for customers who have not switched supplier since the market was opened to competition are on average £76 higher than for customers who have switched. The disparity in prices is greatest for those customers who pay their energy bills by direct debit, with a difference of £89 between those who have and haven't switched.
  • The analysis shows that the different amounts paid for gas by those who have and have not switched has trebled since 2010, when Ofgem launched a major investigation into competition in the energy markets, called the Retail Market Review.
  • From 2010 to 2013 the additional cost paid by gas customers who had not switched supplier, compared to customers who had switched, rose, on average, from £26 to £76.

Reg Platt, IPPR Senior Research Fellow said:

"Competition is failing in the energy markets. Our new analysis shows how the biggest energy companies add a surcharge to the tariffs of customers that they inherited from their time as monopoly suppliers. This means that these customers pay more for their energy than they need to. It also means smaller suppliers are at an unfair disadvantage because they have not inherited any customers and must compete against the low prices that the big companies offer to people who have switched.

"Ofgem has shown itself to be incapable of taking the action that is necessary to get the energy market working in the interests of consumers. In the four years since Ofgem launched a major review into whether competition is effective in energy, the surcharge on gas prices has increased substantially.

"The outcome of the new competition review due to be published this week cannot be simply more of the same. It's time that the market was radically reformed so that small energy service companies, local authorities, communities and individuals can all become active players in the energy market."

Notes to Editors

Before the market was opened to competition, during the 1990s, there were fourteen regional electricity suppliers and one national gas supplier, which operated as regulated monopolies.

IPPR's analysis is based on new figures released by the Department of Energy and Climate Change (available here https://www.gov.uk/government/statistical-data-sets/annual-domestic-energy-price-statistics).

The surcharge paid by different electricity customers in 2013 was:

  • Standard credit customers: £29
  • Direct debit customers: £27
  • Prepayment meter customers: £26

The surcharge paid by different gas customers in 2013 was:

  • Standard credit customers: £62
  • Direct debit customers: £89
  • Prepayment meter customers: £55

The Government has commissioned a report into competition in the energy markets by Ofgem, the Office of Fair Trading, and the Competition and Markets authority, which is due to be published in March. https://www.ofgem.gov.uk/press-releases/competition-energy-markets-assessment-framework-published

Contacts

Richard Darlington, 07525 481 602, r.darlington@ippr.org

Sofie Jenkinson, 07981 023 031, s.jenkinson@ippr.org

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