Energy market review: Ed Davey vows to speed up supplier-switching

 

Ed Davey: "24-hour switching is my ambition"

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Energy Secretary Ed Davey has promised to cut the time it takes to switch energy supplier to improve competition and drive down prices.

He told MPs his "ambition" was to reduce it from the current five weeks to 24 hours, but added that the change would not "happen overnight".

Mr Davey also promised "criminal sanctions" for companies found to have manipulated the energy market.

Labour accused the government of being "too weak" to stand up to energy firms.

Analysis

Energy prices have become a real political headache for the coalition for three reasons:

First they have come to symbolise the general debate over living standards and how to address the gap between the speed at which prices are rising compared to wages.

Second, Labour believes it has hit on a simple and effective idea to freeze prices for 20 months - and ministers have struggled to articulate a powerful enough critique of that proposition.

And third, the companies themselves (or at least four of them so far) have put up their prices on average by 9% - seemingly inured to public outrage and political frustration.

Today saw the first concrete step in the government's answer to the issue.

More teeth for the regulator plus criminal sanctions for the firms if they fix the market will all resonate to some extent.

But today was just a warm up for the main event - next month's autumn statement - when ministers will have to say how they plan to make good on their promise to roll-back green taxes in order to reduce people's bills.

If that doesn't put some cash back in people's pockets, the government will risk looking impotent in the face of the "big six".

The secretary of state was announcing a new annual review of the energy market in a Commons statement.

The government has been under pressure to help people facing higher gas and electricity bills, with Labour calling for a price freeze.

The coalition's answer has been to encourage households to switch suppliers - but Mr Davey has accused the "big six" energy companies of anti-competitive practices by "trying to make it more difficult" to do that.

He told MPs: "I am challenging the industry to deliver faster switching.

"If you can change your broadband provider with a few clicks of the mouse why shouldn't you be able to do the same with your gas or electric?

"It shouldn't take five weeks for the change to take effect - 24-hour switching is my ambition."

He praised First Utility for making progress towards the 24-hour target and said other suppliers, including E.On, SSC and smaller independent firms had agreed to talks on speeding up switching.

He conceded that the reforms would not "happen overnight", but said the government was prepared to "compel those who drag their heels".

Ministers will also launch a consultation on "increasing the sanctions for manipulation of the energy markets, so that they carry criminal penalties for the first time", the Lib Dem MP added.

The review he has announced will be led by the regulator Ofgem, together with the Office of Fair Trading (OFT) and the Competition and Markets Authority (CMA), and is expected to report annually from spring 2014 on the state of the energy market.

It will examine the barriers encountered by new suppliers entering the market, scrutinise prices and profitability, and evaluate how easy customers are finding it to switch suppliers.

Fuel bill breakdown

But Labour's shadow energy secretary Caroline Flint said: "We don't need another review, we need action - action to freeze people's energy bills and fix this broken market.

"Breaking up the big six by ring-fencing their generation from supply, put an end to secret deals and requiring all electricity to bought and sold via an open exchange and a tough new watchdog with the power to force these companies to cut their prices when wholesale costs fall."

She ridiculed the government's advice to consumers to shop around for the best deal, telling MPs: "Even the cheapest tariff in a rigged market will still not be a good deal."

Mr Davey said if his shadow Caroline Flint had "secret information" of cartel activity then she must confirm the competition regulator is aware of it so it can investigate.

Caroline Flint: "We have heard...excuses for why people's bills are going up"

Ofgem's Chief Executive Andrew Wright said the regulator's reforms, which include limiting each supplier's number of available tariffs to four and requiring them to display their cheapest deals on bills, were delivering a "simpler, clearer and fairer market for consumers".

But Which? executive director Richard Lloyd said Mr Davey's proposals were "too little too late".

Speaking on BBC Radio 4's World at One programme, he said: "Frankly, asking regulators - the competition authorities and Ofgem - to do a review to see if this market is working competitively is a bit of a joke: it's asking the regulators to do their day job."

Four of the UK's six main energy companies have recently announced price rises, with an average increase of 9.1%, and the other two are expected to follow suit soon.

The firms say the rises are largely due to increasing wholesale prices, but Ofgem says these have risen by only 1.7% in the past year.

Wholesale costs - the price at which energy companies buy the gas and electricity they provide to customers - make up just under half of the energy bills paid by most customers.

Energy firms dispute Ofgem's figures and say wholesale prices have risen between 4% and 8% in the past 12 months.

 

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  • rate this
    +168

    Comment number 92.

    You will have to excuse the ignorance of a grumpy old man but I seem to remember in my youth that the gas board brought you gas and the electricity brought you electricity. This occured without the need for a middle man and the product was supplied at the lower rate, i.e. half of what it now costs. What was wrong with this system and could we go back to it?

  • rate this
    -76

    Comment number 84.

    So people want a 5% cut in their energy bills at the cost of having a monopoly supplier, strikes, lack of investment and public subsidy? At the end of the day, it may seem that we have to pay a lot for energy, but in relation to other European countries they are not extortionate, and it's not as if they would be much cheaper if there was no profit made anyway.

  • rate this
    +25

    Comment number 78.

    Maybe power should be in the hands of non-governmental not for profit organisations with strict terms and conditions regarding executive pay. There are very talented people on much lower pay than the fat cats who actually do the work for the said fat cats but are not credited for it.

    Power must be free of both political interference on the one hand and profit greed on the other.

  • rate this
    +16

    Comment number 71.

    I have just switched energy supplier am now paying £20 a month less. I found the process itself straightforward, and just applied through a comparison web site. But it did take ages. People need to be able to vote with their feet, and anything that simplifies that process should be welcome... but it can't come soon enough. And get these smart meters rolled out ASAP! Estimated bills are a joke!

  • rate this
    +8

    Comment number 43.

    Yes you can save money by switching but whether it's in a day or month is largeley irrelevant. Especially as suppliers give a few weeks notice of forthcoming rises.

    I'll be moving just to spite my current provider, but the reality is that most people won't do this so.

 

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