Which? responds to the draft Bill for an energy price cap

Alex Neill, Which? Managing Director of Home Products and Services, said:

“For millions of people paying over the odds on a standard variable tariff, today’s draft Bill will sound like a positive move. The Government must guard against any unintended consequences, so it’s encouraging that this intervention is designed to be temporary, and that Ofgem has been charged with ensuring that competition and incentives for consumers to switch are maintained.

“This proposed price cap will take some time to come into effect, so customers currently sitting on standard variable tariffs should switch now and start saving immediately.”

Notes to editors:

Energy customers looking for cheaper deals can compare deals with Which? Switch, a transparent and impartial way to compare energy tariffs and find the best gas and electricity supplier.

Which? believes that there are five critical tests that the Government and the energy regulator should address for any intervention to be successful for consumers.

1. It must not cause longer-term price increases
Energy bill payers have seen another round of inflation-busting price hikes by many of the larger and smaller suppliers in recent months leading to energy prices returning as one of consumers’ top financial concerns.

While standard tariff customers have seen their prices go up on average of more than 40% for gas and 35% for electricity over the last 10 years, there are also a significant number of cheaper deals available on the market for people who switch.

The move to cap energy prices must therefore not be the cause of the cost of energy going up for consumers longer term. If consumers see price reductions over night, but energy providers offset initial reductions with price increases over the long-term, the cap won’t have worked.

It is by no means certain that this intervention would benefit even those customers on a capped standard tariff as market conditions change in the future. The broader the cap, and longer it is in place, the more difficult it will be for the regulator to set the cap at the right level , with minimal headroom, so that consumers see meaningful benefit.

The Government and regulator must, therefore, ensure that it has a rigorous process in place so that any cap is set at a fair level for consumers. They must also continually monitor the market to ensure that there is no wider adverse effect on energy prices.

2. It must not remove incentives for providers to improve their service
Consumers have routinely suffered from poor customer service from many suppliers and have faced particular issues with inaccurate bills and poor complaint handling. Which?’s annual energy satisfaction survey particularly shows issues with the larger energy suppliers with Npower the lowest-scoring supplier for the seventh year running, with a customer score of just 44% and the remaining Big Six suppliers sitting in the lower half of the table once again (Eon (57%), British Gas (56%), SSE (56%), EDF Energy (55%) and Scottish Power (50%).)

Providers do not currently compete on services and a history of under-investment means consumers are being let down on even the basics; such as accurate bills and smooth complaint handling. A price cap must not remove the incentive for providers to improve their service , it must become a distinguishing factor for consumers choosing a provider.

The Government and the regulator must ensure that the cap does not lead to a drop in customer service and instead that steps are taken to drive all energy companies to rapidly improve their performance. It must establish new metrics for customer service that would be monitored during any intervention and take action if suppliers let their customers down.

3. It must not stifle innovation
The roll-out of smart meters is expected to lead to important changes for energy customers, helping them to be better informed about their energy use, to get more accurate bills and to switch more easily. It is also expected to encourage energy companies to develop new, innovative tariffs that will better meet the needs of consumers. More immediately, in recent weeks, we have seen energy suppliers starting to explore launching new innovative deals, such as tracker tariffs.

The Government and the regulator must ensure that the cap does not stop consumer-friendly innovation in the energy market. They must ensure that the smart meter roll-out continues to be advanced in the most cost effective way possible.

4. It must lead to a truly competitive energy market
Consumers have suffered as a result of a lack of competition in the energy market with the competition authorities estimating that people are collectively overpaying by £1.2bn as a result.

The Government must clearly set out its position on competition in the energy market. With the regulator, it should set out how it believes competition in this market should function in the light of a price cap. The next Government and the regulator should monitor the impact of the price cap on the number of new suppliers in the market, the range of new deals available, and switching levels.

It must ensure that the competition inquiry’s reforms aimed at encouraging consumer engagement continue during any price cap. Lessons must be learnt from these tests and trials to better engage consumers with their energy supplier, so that we do not return to the current flawed energy market if and when any price interventions are lifted.

If we get to the end of the cap period and the situation is the same as it is today, then the intervention will have failed. The result of any intervention must be a better functioning, truly competitive energy market , where everyone is getting a good deal and those consumers that engage and shop around are getting a better deal.

5. It must have clear criteria for bringing any cap to an end
The long-term objective must be for a competitive energy market that delivers for consumers. This means that any price cap should be time limited.

The Government and the regulator must set out proposals for the length of the cap, how they will monitor its success, and the criteria by which it will be removed.

-ENDS-

 

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