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Householders could save £160 a year by switching energy providers, says the CMA.
Householders could save £160 a year by switching energy providers, says the CMA. Photograph: Peter Byrne/PA
Householders could save £160 a year by switching energy providers, says the CMA. Photograph: Peter Byrne/PA

Millions of Britons are overpaying for energy, says competition report

This article is more than 8 years old

Inquiry prompted by Labour’s pledge to freeze prices will encourage people to shift energy providers but will not call for breakup of big six firms

Households paid £8.5bn too much for their power between 2009 and 2013, according to a report by the competition watchdog that found customers bore more responsibility for the overspend than companies because they do not switch supplier enough.

Millions of householders could each save up to £160 a year by switching to a new breed of lower-cost provider, claimed the Competition and Markets Authority.

But the CMA resisted calls from fuel poverty campaigners for a breakup of the big six energy companies and instead recommended a price cap on high-cost tariffs.

The watchdog also recommended a price comparison website should be set up and run by the energy regulator, Ofgem, and called for the scrapping of a recently introduced measure to restrict the number of tariffs available.

However, the CMA’s most critical comments came in an assessment of how large utilities have benefited at the expense of their customers.

“The initial findings of this [CMA] analysis suggest that average prices offered by the big six firms over the period 2009 to 2013 were around 5% above the competitive level in the domestic segment ... this amounts to domestic customers paying around £1.2bn … more on an annual basis.”

Combined with the estimated £500m of extra charges on small- and medium-sized business customers the amount over the five year period comes to £8.5bn.

Roger Witcomb, a CMA non-executive and chairman of the energy market investigation, declined to criticise the big six - British Gas, RWE Npower, SSE, EDF, Scottish Power and E.On - and insisted they had just “behaved in a very commercial way”.

But he attacked a series of initiatives by Ofgem and the Department of Energy and Climate Change, which he argued had failed to bring benefits to consumers.

Witcomb said transitional price caps could be introduced as soon as January 2016 to bring down the highest bills. This could in theory mean that 70% of the market – bill payers on standard variable rates – could benefit. However, the price would rise and fall in line with wholesale power prices and other costs.

Richard Lloyd, executive director of consumer group Which?, said: “This is a damning indictment of how the energy market is failing consumers, with the biggest suppliers taking advantage of millions of households who have also been hit with the costs of government energy policy.

“Now that we have a clear, official assessment of what’s wrong, we want the regulators to work with consumers to make sure their reforms will be effective this time.

“In the meantime, it’s right to put in place strong extra protection for consumers who don’t, for whatever reason, get a fair and competitive price.”

The report was met largely with relief by the big six energy suppliers but the share price of British Gas parent, Centrica, closed down nearly 3% and SSE dipped just over 2%.

Lawrence Slade, chief executive of the power industry lobby group Energy UK, said the report found no evidence of profiteering.

“The energy industry recognises the need to put customers first while delivering secure, affordable and cleaner energy. Customers have not been overcharged but money may still be saved when people shop around for deals that suit their individual circumstances,” he said.

Amber Rudd, the secretary of state for energy and climate change, welcomed the CMA report and recommendations. The findings now go out to consultation with a final document promised by Christmas Day.

“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,” said Rudd.

But a spokesman for the prime minister at a political briefing for journalists on Monday morning expressed concern about the price caps: “The prime minister … does not think that price regulation across the market is the right approach.”

Peter Atherton, a utility analyst with Jefferies investment bank in London, said he was reassured by the CMA’s awareness that the price cap would have to be introduced carefully in order to avoid killing off competition.

Atherton added that the report vindicated the industry’s protestations of innocence. “If you had offered a report with findings like this to the energy sector a year ago they would have bitten your hand off (to accept it).”

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