Households urged to switch to cheapest energy plans
Just one in ten households (13%) are paying the cheapest energy prices on the market leaving 87% still potentially paying over the odds for their energy, says uSwitch.com, the independent price comparison and switching service. Although 1 million more households are now on online plans - where suppliers consistently offer their most competitive prices - this still only adds up to around 3.5 million or 13% of households in total.
The low uptake of competitive plans shows the depth and scale of the problem Ofgem faces in trying to boost consumer engagement in the market. Despite its push in recent years to increase the number of households cutting their energy bills through switching, so far just 3.5 million have moved to online plans. Instead, 7 million have taken out price guarantee plans - often paying a premium to do so - while 3.8 million electricity customers and 2.6 million gas customers are on expensive prepayment meters.
An estimated 10 million households are still on standard plans and will be paying far more for their energy as a result. In total, this overpayment could be costing consumers as much as £2.2 billion a year, with standard customers paying quarterly by cash and cheque forking out around £300 a year more for their energy than online customers paying by direct debit.
The low take up of suppliers' cheapest plans may be partly due to how consumers switch. A recent Ofgem report shows that 30% of people switching gas supplier found out about available deals through an independent comparison service while a third (33%) switched as a result of door knocking. In fact, in total, 61% of switchers found out about deals through a supplier - which meant there was no guarantee that they were being offered the cheapest online plans or even the cheapest plans at all.
Ofgem is fighting back, although it remains to be seen what impact its market remedies will have on the take-up of low cost online energy plans. The introduction of Annual Statements means that households will have a yearly prompt plus all the information they need to make an informed choice over their energy plan and to switch to a more competitive deal or supplier. More importantly, the Government is pushing for suppliers to be forced to display their cheapest tariffs on customer bills. This consumer-friendly move could see the numbers moving to competitive online energy plans rocket.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "No matter how these figures are dressed, the fact that just one in ten British households are paying the cheapest energy prices on the market is a huge disappointment and means that Ofgem really does have its work cut out. The market is competitive - otherwise you wouldn't be able to save around £300 a year by moving online - but not enough consumers are taking advantage. And this is what the regulator has to address.
"Online energy plans are now around £300 a year cheaper than standard plans and offer consumers a chance to take their energy bills back down to pre-2008 levels. I would urge householders to move to dual fuel, pay by direct debit and sign up to an online plan so that they can start to enjoy competitive prices straight away. Ofgem has taken some good first steps, including introducing Annual Statements, but more still needs to be done if this message is to get through to consumers loud and clear."