Retail strategy shows government ‘no longer believes in competition’

Moves towards automatically switching disengaged energy customers to cheaper deals represent an almost “ideological shift” in the government’s attitude, an industry expert has said.

Last week the Department for Business, Energy and Industrial Strategy (BEIS) published its long-awaited energy retail strategy alongside a consultation on new switching arrangements first mentioned in last year’s white paper.

One of the key proposals centred around opt-in switching, similar to Ofgem’s previous collective switch trials, and opt-out switching where customers are automatically moved. It proposed introducing opt-in switching incrementally and launching a trial of opt-out switching, both unlikely to commence before 2024.

Speaking to Utility Week Adam Bell, head of policy at management consultancy Stonehaven and former head of energy strategy at BEIS, said the government’s approach was both radical and conservative.

He explained it was radical in its proposals for automatic switching and conservative in that broader reform to facilitate new business models is not scheduled until the late 2020s.

On opt-out switching, Bell said: “The strategy explicitly says the government no longer believes that encouraging competition can help people who are disengaged with the market. Of course to a degree the price cap is a signal in this direction, but quite frankly the whole point of the price cap was to create the time to put the conditions in place for effective competition.

“Both the government and the retail strategy are effectively saying that they don’t really believe that competition is ever going to be adequate to support people who are disengaged from the market. That’s a big step change in the government’s attitude, it’s almost an ideological shift and it’s really significant for the sector.”

Ultimately, he believes the “radical” opt-out proposals could significantly impact the large incumbent suppliers.

He continued: “Opt-in switching is something Ofgem has done before, they’ve tested it, it does work and delivers some reduction to bills but it still requires people to be engaged. As a consequence it’s only going to go so far. Opt-out switching on the other hand is completely radical.

“There’s various different designs, I don’t think the government has a preference yet but in the main it’s going to be something that bundles up a bunch of disengaged customers at the end of their contracts and effectively sell them on at the lowest price.

“This is really radical because although it still does potentially involve a market mechanism at the end, auctioning them off and selling them on, it does mean that for all those large incumbents that have been relying on those disengaged consumers, they would no longer be able to do that. This will go direct to the bottom line of some very big retail players who right now aren’t making a lot of money anyway.”