Published:

27 comments

John Penrose is a former Cabinet Office Minister and is MP for Weston-super-Mare.

Most industries believe that customer loyalty is hugely important. Whether it’s a supermarket’s loyalty card, an airline’s airmiles scheme or the coffee card that gives you a free cuppa, most businesses reward their most loyal customers with special treatment, to keep them coming back.

Except for energy. What other industry doesn’t give their most loyal customers any discounts or special deals, but charges them higher prices than anyone else instead? Which companies believe that loyalty should be exploited, not rewarded? Who treats their longest-serving customers as chumps, to be quietly and secretively switched onto expensive, unfair deals when they aren’t looking, and then milked; ripped off mercilessly for as long as possible.

The big six energy firms, that’s who.

The rest of the industry is pretty good. There are 30 or more new-ish energy firms snapping at the heels of the big six, and they understand that customer loyalty matters if you want to grow.

Three of them – Ovo Energy, Utility Warehouse and Octopus Energy – have today come out in support of the proposals I’m going to present to the Commons in this afternoon’s debate on energy prices.

The figures are stark. Roughly two-thirds of all customers – that’s at least 20 million households – are on the expensive, rip-off deals: the ‘Standard Variable Tariff’ or SVT.

And while a minority of customers switch to a different energy supplier regularly, around 90 per cent of us don’t. The number of households who have rarely or never switched remains stubbornly high, which suits the big six just fine.

In today’s debate, MPs from all parties will discuss ways of putting energy customers in the driving seat and giving them the same power to choose a new supplier as easily as they can switch to a different brand of toothpaste or coffee.

Firstly, we’ve got to make switching a lot easier. Too many people find switching to a different energy firm stressful and are frightened off as a result.

Even the Price Comparison Sites, who have an interest in making it as simple as possible, say that they lose huge numbers of customers who abandon their search the moment they’re asked a basic, essential question like what your current energy usage is.

Others think that switching is likely to go wrong and the rest simply haven’t got the time. We all lead busy lives, juggling careers, childcare, school runs and goodness knows what else. Switching energy supplier can easily become one of those things you know you ought to do but you never quite get round to doing.

The difference, of course, is that other products don’t automatically switch you to a super-expensive brand of toothpaste or coffee unless you tell them not to. They don’t expect you to be on your toes all the time, to stop them changing the terms of your deal and ripping you off when you’re not looking.

Fortunately, there are some simple things which will make switching easier, for example making customer data easily available to a new energy firm if we give them our permission. That way we don’t have to fill in endless online pages with information we can’t remember or haven’t got.

At the moment the information can take days to come through, and the Big Six throw all sorts of obstacles in the way.

In future, we should just be able to ask our new firm to get it in seconds from our existing supplier with a click of a mouse or a tick of a box. The number of people switching would go through the roof if we do this.

Next, there are end-to-end services provided by firms like Make It Cheaper, Flipper, Ovo and Money Saving Expert’s ‘Cheap Energy Club’ which do the donkey-work for us, handling everything from finding a better deal to organising the switch.

These changes are essential steps to solve the underlying, fundamental problems which make the energy market such a rip off. If the Government, the regulator Ofgem and perhaps even enlightened energy firms themselves, are willing to take them, the abuses and consumer detriment would start to fall.

But given that two-thirds of all customers are on these rip-off tariffs, and that proportion has been glacially slow to change, there’s an awfully long way to go and this will take a long time. Even under the most optimistic scenarios, an unacceptably large number of households will still be being ripped off for a good many years yet.

So we need a temporary solution while all those changes to make switching easier and less scary start to work.

The answer is a relative price cap – a maximum mark-up between each energy firm’s best deal, and their default tariff. It would mean that, once your existing deal comes to an end, if you forget to switch to a new one then you won’t be ripped off too badly.

Energy firms could still have as many tariffs as they wanted, so there’d be plenty of customer choice. If you want a green energy tariff, that’d be fine.

Crucially, it would be a lot better than a normal price cap because each energy firm could still adjust their prices whenever they wanted, if the wholesale price of gas or electricity went up or down.

The lobbyists will hate the relative cap, because there will be much less lobbying to do. Putting customers in the driving seat means fewer fat fees, and fat lunches. If customers can switch their supplier as easily as changing their brand of cornflakes or soap, then politicians, bureaucrats, and the regulators, will – rightly –  matter a lot less than we used to.

But the people who will hate the relative cap the most are the Big Six because it will force them to treat us, their customers, fairly.

In other words, the energy sector will become a normal industry, where the customer is king – not the regulator or the politicians.

And that would be an industry which was right, and fair, and could hold its head up high at last.

27 comments for: John Penrose: Energy bills. We need a relative price cap – to boost choice, cut prices and stick it to the Big Six.

Leave a Reply

You must be logged in to post a comment.