Proposals published to trial automatic switching for customers on expensive default energy tariffs to cheaper deals, and government to tackle ‘loyalty penalty’.
Business and Energy Secretary Kwasi Kwarteng today (23 July) published proposals to trial automatic switching for customers on expensive default energy tariffs to cheaper deals.
While around 5.8 million households switched energy supplier last year, taking advantage of savings worth on average £290, research by regulator Ofgem suggests that less than half of British households regularly shop around for a better energy deal. The government is determined to tackle the ‘loyalty penalty’, where energy companies place longstanding customers on the most expensive tariffs.
Under plans published today, trials of a new system will take place in 2024, in which some consumers on costly tariffs would be automatically switched to cheaper ones on the market unless they opt out.
The proposals also include creating a framework for ‘opt-in switching’ by 2024, where consumers on the most expensive tariffs would receive personalised switching advice to switch to a better value tariff following recent Ofgem trials that led to greater consumer engagement with the energy market.
The move is designed to protect customers from rip-off energy deals, saving consumers money on their energy bills, and increase competition by encouraging suppliers to introduce fairer but also greener tariffs. Ministers hope the plans will also mean that more consumers will switch to tariffs powered by renewable electricity, as part of efforts to tackle climate change.
The proposals were published as the Business and Energy Secretary announced that the Energy Price Cap, introduced in 2019 to protect the 15 million British households on default tariffs, could continue for longer – ensuring households on the highest tariffs save between £75 and £100 a year on dual fuel bills.
New legislation is planned to allow the cap to continue beyond 2023 if needed, so that consumers who do not shop around for the best deals on their energy – including those who opt out of any future automatic switching system – are protected from rip off tariffs.
Business and Energy Secretary Kwasi Kwarteng said:
In another move to better protect the most vulnerable energy consumers, the government is also extending the Warm Home Discount Scheme, which will knock £150 off the electricity bills of many pensioners and low-income families, until 2026 – supporting an extra 750,000 consumers. A total of three million households will now benefit from the scheme.
Minister of State for Energy, Anne Marie Trevelyan, said:
The opt-in switching plans will look to scale up the successes of Ofgem trials in 2018/2019, which showed that when customers are contacted and given options for switching through simple, well designed letters and emails, they are 5 to 10 times more likely to switch to a cheaper tariff than those who were not.
Director of Energy at energyhelpline, Tom Lyon, said:
The plans come alongside a new Energy Retail Strategy published today, which builds on the Energy White Paper. This will help create a fairer retail energy market, with greater competition and innovation and encouraging a move towards greener energy tariffs. It aims to better protect consumers from excessive bills as the UK transitions to a smart energy system as the government takes steps to eliminate the UK’s contribution to climate change by 2050.
Significant progress has been made in recent years in reforming the retail energy market, with 22.2 million smart meters being installed in homes, and the number of households switching rising from 4.4 million in 2016 to 5.8 million last year. Many energy suppliers have made their cost and pricing systems fairer, with more of a focus on winning new customers and less on relying on existing default customers. However, ministers believe there is still further to go.
Today’s proposals come alongside other measures to encourage greater engagement from consumers, including:
- Ofgem’s faster, hassle-free switching programme, which will significantly shorten the time it takes to switch
- continuing the smart meter rollout, helping suppliers collect electricity customers’ usage as regularly as every half an hour to better manage supply and demand, saving consumers up to £4.5 billion a year
- smart data initiatives to allow consumers to more easily share their energy usage data with price comparison sites to help them get the best deal