Households paying up to £111 ‘loyalty tax’ to energy suppliers

Consumers who are still with their old regional electricity board are being urged to move to another supplier to avoid paying a local ‘loyalty tax'. According to uSwitch.com, the independent price comparison and switching service, households who have stayed loyal to their incumbent supplier are paying up to 33% or £111 a year more for their electricity as a result. On average, this loyalty tax costs households 15% or £58, potentially adding up to £681 million in total to bills.

The news comes only days after British Gas announced that it was going to be offering the cheapest electricity prices in every region - challenging local suppliers and shaking up competition.

All suppliers operate a regional pricing policy for electricity - charging customers different prices according to where they live. While suppliers have been keen to compete by offering lower prices in other suppliers' regions, they have tended to overlook their own areas where they already have a strong customer base. As a result, in 7 out of 14 electricity regions the incumbent is the most expensive supplier. Even in those regions where the incumbent supplier isn't the most expensive it is still being undercut by at least one competitor. On average suppliers are charging customers in their ‘home' region 6% or £25 more than they do customers elsewhere.

This means that households face a postcode lottery over electricity prices, with prices ranging from as little as £335 (British Gas in Yorkshire) to as much as £482 (npower in Swalec). However, there can also be as much as an £88 difference in the prices offered by one supplier in different regions.

The good news is that consumers can turn the tables and use regional pricing to their own benefit. The loyalty tax is only payable if households stick with their local electricity company. If they move to the supplier offering the cheapest price in their region, they can start to enjoy the benefits of the competitive market.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "There are two ways of looking at this. The downside is that suppliers are charging local customers a loyalty tax, but the upside is that they are providing a really good incentive for households to switch, which is what competition is all about. This issue is completely in consumers' own hands, as these extra costs are avoidable if they use the market.

"Consumers have to understand that there is no reward for loyalty. The cheapest prices and best deals are being offered time and time again to those who are prepared to change suppliers. In 7 out of 14 electricity regions the incumbent supplier is the most expensive and in every region there is at least one supplier that is cheaper. It cannot be clearer than this - if you are still with your local electricity board you are not getting a good deal. This local loyalty tax is completely avoidable - don't let it hit you.

"There are three easy steps to getting a better energy deal: move to dual fuel, pay by direct debit and sign up to an online plan. Importantly, make sure any comparison is based on your personal circumstances, including where you live, so that you know you are winning the postcode lottery."