Return of ‘tease and squeeze’ tariffs will be ‘kick in the teeth’ for consumers

Failing to make the ban on acquisition-only tariffs (BAT) permanent will be a “kick in the teeth” for energy customers, So Energy’s chief executive has said.

Alongside Ofgem’s price cap announcement on Friday (23 February), the energy regulator revealed that it will extend the ban for another 12 months, but added it intends to open a consultation to consider shortening this extension to just six months.

The news has been met with frustration by Simon Oscroft, So Energy interim chief executive and co-founder, while Octopus Energy has also raised concerns about “tease and squeeze” tactics.

Oscroft said: “Today’s Ofgem decision is another kick in the teeth for energy customers after a bruising few years. When the BAT is removed, suppliers will be free to hide their best deals from their loyal customers.

“Why shouldn’t they have access to the best deals? Loyal customers should not have to call their supplier on renewal and haggle for a deal that they can see the supplier is offering elsewhere.

“It’s unfair for customers, and so it’s no surprise that this move is hugely unpopular. Our recent survey of energy customers found that nine in 10 want existing energy customers to access the same tariffs as new customers.”

Meanwhile Octopus Energy’s regulation director Rachel Fletcher said: “It’s good to see Ofgem extend the ban on teaser tariffs, but it needs to end them once and for all.

“A permanent ban would force suppliers to compete by innovating and driving lower costs – rather than lazily relying on ‘tease and squeeze’ tactics, designed to lure customers in on temporary cut price deals.

“A permanent ban on rip-off tariffs will prevent a return to the wild west energy market – which bamboozled customers and cost them billions in bailing out failed suppliers.”

Ofgem confirmed the cap will fall to its lowest level since Russia’s invasion of Ukraine in 2022.

The regulator said it will fall by just over 12% on the previous quarter from 1 April to 30 June 2024.

For an average household paying by direct debit for dual fuel this equates to £1,690, a drop of £238 over the course of a year – a saving of around £20 a month.

Debt allowance

Despite the cap decrease, the regulator has warned that energy debt has reached a record figure of £3.1 billion. As such, it has made a decision to introduce a temporary adjustment to the cap which will allow suppliers to recover costs related to increased levels of debt.

A temporary allowance of £28 per year (equivalent to £2.33 per month) is being introduced to “make sure suppliers have sufficient funds to support customers who are struggling”.

This will be paid for by direct debit or standard credit customers and is partly offset by the termination of an allowance worth £11 per year that covered debt costs related to the pandemic.

This charge will not impact PPM customers as they do not build up the same level of debt as credit customers due to the fact they pay as they go.

Utility Week has calculated that if the c.24 million non-ppm SVT customers each pay £28, this will result in a £672 million reduction in the £3.1 billion debt figure, resulting in a figure of around £2.4 billion in debt overall. There are already bad debt provisions within the price cap, however, meaning the latest allowance is in addition to those.

Asked for his thoughts on the allowance Energy UK deputy director Daniel Portis said:  “The price cap allowance is positive in the extent that it is necessary, but debt is bad news for people who are paying their bills because they will be paying more and it will probably continue to contribute to affordability pressures going forward because the debt problem is significant and is not going away.

“We really need to look at other options to limit debt in the first place, and we would really like to see government as part of that conversation as well on the affordability side.

“There’s some really sensible proposals out there, particularly from Citizens Advice recently on what could be done quite quickly in terms of the Warm Homes Discount to expand it to a greater number of people and to increase the support that it gives and that has to be a big part of the answer ultimately.”

Profiteering and missed opportunities

Giving her thoughts on the latest price cap update, Unite general secretary Sharon Graham accused suppliers of “profiteering”.

She said: “Ofgem’s price cap might have fallen slightly but hard-working people are still paying through the nose while the energy profiteers laugh all the way to the bank.

“Centrica, which earlier this month reported £2.8 billion profits, has even publicly celebrated Ofgem’s complicity. Its CEO bragged that its huge profits last year were boosted by an additional fee Ofgem added to the price cap.

“Everyone except the energy barons can see the system is broken. The need for public ownership has never been more pressing. It is time our politicians made the right choices.”

Meanwhile Sue Ferns, Prospect senior deputy general secretary, took aim at the government.

She said: “Today’s announcement will provide some relief to households and businesses but still leaves millions in fuel poverty. The two years since energy prices spiked have been a wasted opportunity to accelerate the rollout of clean energy and reduce our dependence on volatile fossil fuels.

“Whether it’s offshore wind, new nuclear or much needed electricity network upgrades, this government has failed to deliver on the clean energy transition and the many good jobs it can create.”

Elsewhere, there have been calls for more support for customers who are struggling with their bills.

Daniel Portis added: “A significant fall in the price cap is very welcome news and much needed respite for customers who have been struggling with high energy bills for the last two years.

“However, this still means that bills are higher than what had previously been considered the norm so paying these will still be a challenge for millions of customers, in addition to the growing debt problem across the sector which has reached record levels.

“Suppliers will continue to do all they can to help customers in difficulties but there remains the need to look at providing greater targeted support so that bills are affordable for everyone while also cutting costs through making more homes energy efficient and getting more of our power from cheaper, clean domestic sources.”

Clare Moriarty, chief executive of Citizens Advice, said: “It’s good news that the cost of energy is falling, but the impact of sky-high prices will be felt for years to come.

“We know more than 5 million people live in households behind on their energy bills and, with the price of energy still far higher than just three years ago, many people will struggle to pay off these debts.

“The government promised a new plan for energy bill support by April 2024 but will miss its own deadline. And the withdrawal of cost of living payments this spring will make it so much harder for many of those already finding it difficult to make ends meet. Without action, people will face a cycle of winter crises year after year.”