Ofgem could allow energy suppliers to once more vie for new business by offering cheaper deals to people switching than to existing customers, under proposals to reignite competition in the market.
The energy regulator for Great Britain is considering reversing its ban on so-called “acquisition tariffs” which are offered exclusively to new applicants at a discounted rate in order to tempt them away from their current suppliers.
The ban came into effect in April 2022 to help stabilise the market after Russia’s invasion of Ukraine triggered an energy price surge across Europe. It was kept in place after its intended deadline a year later because prices were “still high and volatile”.
Ofgem said it had decided to consult on ending the ban because it was “no longer necessary for market stability” and could be costing households more on their energy bills by reducing competition.
Martin Lewis, the founder and chair of MoneySavingExpert.com, said: “In normal times, I wouldn’t call for firms to be allowed to offer new customers cheaper prices than existing [customers], yet these aren’t normal times.”
Switching between energy suppliers has plummeted during the energy crisis. It was three times higher in 2021, compared with current rates, before a surge in energy costs forced most suppliers to cancel any deals priced below the government’s energy price cap – reducing the incentive to shop around for a better deal.
There were 318,000 gas and electricity account switches in February, according to Ofgem’s latest data, compared with 986,000 in March 2021.
“The energy market is broken,” Lewis said. “We need anything possible right now to stimulate competition and bring prices down.”
He added: “The current UK retail energy system was built on the premise that firms would fight each other for customers and compete on price – yet that’s hardly happening. Most firms are currently happy to sit on their existing customers and profit – where once you could switch and save 30%, now it’s a few per cent at most. So, in reality the energy price cap, set up as a remedial backstop rate, is now pretty much the price.”
However, fuel poverty campaigners have warned that ending the ban could lead to a return of “discriminatory tariffs” that penalise people based on where they live, their meter type or if they are on a priority register.
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Simon Francis, the coordinator of the End Fuel Poverty Coalition, said: “In 2009 Ofgem banned discriminatory pricing after tariffs emerged which had unexplained differentials between payment methods, between regions and between fuels [gas and electricity].
“However, in 2012, the licence condition which banned these tariffs was allowed to lapse. If Ofgem wants market conditions to return, it must also beef up its consumer protections and ensure we don’t see a surge in discriminatory tariffs.”
