Energy prices: Ofgem consultation could mean a return to cheap tariffs for switchers
As Ofgem announces a potential return to cheaper energy deals for those who switch suppliers, Katy Ward explores the pros and cons of this approach.
Regularly switching energy suppliers could once again allow you to bag the best deals on the market, if a new proposal from Ofgem gets the green light.
The British regulator recently launched a consultation on reversing its ban on “acquisition tariffs”, which give new customers exclusive access to lower rates in an attempt to lure their business.
Introduced in 2022, the ban was designed to bring stability to markets following Russia’s invasion of Ukraine, which resulted in soaring energy prices across Europe.
However, Ofgem now believes that its reversal would increase competition between suppliers and result in better deals for customers.
With the regulator set to make its decision in July, a removal of the ban could take effect from October this year.
But what could this mean for the average household?
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A dramatic decline in switchers
Unsurprisingly, the ban on acquisition tariffs caused the number of customers switching suppliers to plummet.
According to Ofgem’s data, some 318,000 gas and electricity customers switched provider in February this year, which is down from 986,000 in March.
While changing energy companies had previously resulted in annual savings of more than 25%, the ban meant there wasn’t much to set one supplier apart from another.
Most of us simply languished on the price cap, which is the maximum energy companies are legally allowed to charge per unit of energy.
Worryingly, Ofgem introduced the price cap as a safety measure to protect against sky-high bills and it was never intended to be the default tariff for the majority of customers.
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The potential winners
Frequent energy switchers would no doubt reap the most benefit if Ofgem’s plans go ahead.
Without the ban, providers will be forced to once again vie for new customers through more competitive deals.
Likewise, the return to cheaper fixed rate deals could also bring greater reassurance for those who value the certainty of knowing how much their bills will cost over the foreseeable future.
Such stability can be particularly appealing with the energy price cap shifting every three months.
Richard Neudegg, director of regulation at Uswitch, said: “This move is a no-brainer to improve the chances of decent fixed deals in time for winter.
“Forcing providers to offer the same energy deals to new and existing customers has meant that suppliers have been encouraged to give up delivering cheap deals.
“Removing the ban will incentivise providers to work harder to compete for customers on price, service and choice.”
In fact, other campaigners such as Martin Lewis argue that the ban ought to be lifted before October.
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The potential losers
While scrapping the ban would be good news for regular switchers, Ofgem’s proposal hasn’t been welcomed by everyone.
Fuel poverty campaigners argue the move could discriminate against certain groups, many of whom may be vulnerable.
For example, some providers may return to their previous model of charging higher prices for customers in certain postcodes or with particular meter types.
Those without internet access may struggle to find competitive deals as some of the best offers are only available through price comparison services.
A penalty for loyalty?
Other bodies such as Citizens Advice believe that removing the ban runs the risk of unfairly penalising those who remain loyal to their current supplier.
“The broader principle that consumers should not suffer a Loyalty Penalty for staying with their current provider is a crucial one not only for the fair functioning of the market but also for consumer trust,” it states.
“If consumers wish to stay with their current supplier they should always be able to access the best deals their supplier offers."
And it seems that many customers would also prefer the ban to remain in place.
According to a YouGov poll commissioned by E.ON Next, 93% of people also believe that suppliers shouldn’t be allowed to reserve their best deals for new customers.
On top of this, 82% claimed they would trust their supplier less if they reserved their best deals for new customers.
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What if I can’t afford my bills?
While a removal of the ban does have the potential to result in lower bills for some, it doesn't alter the fact that many of us are still struggling.
If you are having difficulty paying your energy bills, there is support available through various organisations and government schemes.
This includes:
Insulation and heating schemes
Winter Fuel Payments
The Warm Home Discount scheme
Cold Weather Payment
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