Citizens Advice: energy market investigation must end ‘scandal’ of higher prices for the poor

The competition regulator “must end the scandal of energy firms charging poorer customers more for their fuel”, Citizens Advice has urged.

The watchdog said a planned market investigation by the Competition and Markets Authority (CMA) needed to consider whether competition was working for people on low incomes, not just active consumers.

Ofgem proposed the referral in March amid concerns the market was broken. It found incumbent energy suppliers were able to charge more to “sticky” customers who did not switch and give cheaper deals to those who shopped around. A consultation on the scope of the investigation closes on Friday 23 May.

Gillian Guy, chief executive of Citizens Advice, told Utility Week: “Citizens Advice sees people on lower incomes who are struggling to meet extortionately high energy costs, brought about in part by energy firms’ failure to provide real choice for people with less money to spend.

“Any market investigation has to establish whether competition is working for different groups of consumers, not just whether it is working at all. If energy firms have effectively created competition deserts for groups of consumers because they regard them as less lucrative or less likely to switch, then that is a significant market failure and the CMA should focus on this in the enquiry.”

The comments coincided with the release of Ofgem analysis showing customers on prepayment meters are charged around £80 a year more than direct debit customers. It had also made Scottish Power pay £750,000 towards a public awareness campaign as redress for failing to justify a large gap between charges for direct debit and standard credit accounts.

The regulator said it was “satisfied” the average £80 difference in price, which had fallen from £140 in 2009, reflected the costs faced by suppliers.

However, Conservative MP Robert Halfon, who has campaigned on the issue, disagreed. He tweeted that the £80 pound discount enjoyed by direct debit customers “is more a premium on the vulnerable and those who don’t access bank accounts”.

Guy also touched on the price gap, adding: “All consumers have been hit by rocketing energy prices, which have increased seven times faster than wages since 2010. But we’re seeing a double standard in the market at the moment, where people who can pay by direct debit or shop around online have more choice and control than those who can’t.

“The CMA has a real opportunity to change this. We’ll be watching the investigation closely to make sure that the reforms work for all consumers, not just those who energy firms want to court as customers.”

Tom Greatrex, Labour’s shadow energy minister, commenting on the proposed CMA referral, said: “The prospect of a full blown market inquiry is confirmation that there are structural issues to address, despite the government’s lack of interest in real reform. Labour has the policies to reform, refocus and re-set this market, and we hope an investigation by the CMA will provide the impetus and expertise for such action.”