It recommends that households should switch their energy provider to secure the most competitive fixed price dual fuel or separate gas and electricity tariffs, instead of languishing on expensive ‘default’ or standard variable rate tariffs.
The Competition and Markets Authority (CMA) has spent a year looking at the way the energy market works and has today published a new report which says there are “a range of problems” with the industry – not least that domestic customers have been paying £1.2 billion a year too much.
Specific mention is made of the ‘Big Six’ energy firms (British Gas, EDF, Eon, nPower, Scottish and SSE), which supply around 90% of domestic gas and electricity customers.
The CMA says: “We calculate that, over the period Quarter 1 2012 to Quarter 2 2014, most customers of the Six Large Energy Firms could have made considerable savings from switching a combination of suppliers, tariffs and payment methods.
“For all the dual customers of the Six Large Energy Firms, average potential gains from switching externally to any tariff offered were equivalent to 14% of the average bill (equivalent to about £160 a year) over the period."
Lack of competition
Competition should be driving down gas and electricity prices as suppliers compete for our business, but it isn’t. The investigation’s chairman, Roger Witcomb, said: “There are millions of customers paying too much for their energy bills.”
On average, bill payers spend around £1,200 a year on energy, but the CMA research found 7 in 10 households are on expensive standard variable tariffs, even though they could be paying less on cheaper tariffs.
Between us, it means we’ve been lining the pockets of energy suppliers with £1.2 billion a year more than we need to.
The watchdog thinks bill payers are either confused by the switching process or simply unaware of the savings on offer – and are missing out on that £160 annual saving as a result.
The CMA also said that recent moves by the market regulator, Ofgem, to reduce the number of tariffs offered by each energy supplier (to four) to encourage switching had not worked.
While the CMA is making recommendations to fix the broken market, MoneySuperMarket is now urging households to take matters into their own hands by switching suppliers.
The watchdog thinks bill payers are either confused by the switching process or simply unaware of the savings on offer
Our energy expert Stephen Murray said: “It’s disappointing that despite a number of high profile changes to the market to stimulate switching, these have failed to make an adequate impact.
“Energy providers have been taking advantage of the long term apathy in the market and it clearly hasn’t been in their interests to encourage customers to move onto cheaper deals.
“Ultimately consumers have to take control of their energy bills and be prepared to switch.
“With energy bills costing up to 10% of household expenditure, for those who’ve never changed their energy tariff, it is vital they take control and switch to a cheaper fixed rate deal, as there are tariffs available for around £900 a year.
“Faster switching times should also encourage consumers to not to rest on their laurels and wait for the CMA to publish its ‘remedies’ for the industry at the end of the year, by then they could have spent far more than they need to heat and power their homes.”
What happens next?
In the short term, the CMA is proposing price caps on the most expensive tariffs until wider reforms to the industry can be made. It has stopped short of recommending that the Big Six suppliers be broken up.
Roger Witcomb said: “These measures can and will help deliver change but we are also aware that we cannot expect an overnight transformation.”
In the meantime, as our expert says, you can make your own savings by switching to the cheapest energy deal. The application process takes around half an hour and you’ll be on your new, cheaper tariff in around 17 days. Click here to get started.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
* 51% consumers could save up to £231.63. MoneySuperMarket data, May 2015