I believe in free markets, but there are some markets that don’t work properly. Where competition has not prevailed in favour of the consumer. Where customers are too weak, companies too strong and choice too constrained.
One such market is energy. Just six companies control 98% of household gas and electricity supply. British Gas accounts for over 70% of all gas customers. In energy the regional monopolies that existed before privatisation largely continue to this day. If you’re reading this and live in London I’d be willing to bet that for three out of four of you EDF is your electricity provider. If you’re in Cardiff I bet it’s SSE. And if I’m right i’d also be willing to bet you’ve never switched and you’re paying too much. And the shocking truth is that over 60% of people have never switched provider. A happy fact for the Big Six.
Since 2005 the average Big Six household energy bill for both electricity and gas has doubled from £600 to over £1,200. While people are struggling to cover costs, between 2009 and 2012 the profits of the Big Six from domestic energy supply increased by £1 billion.
Ed Miliband talks a lot about this, and has promised to freeze bills. But we know from bitter experience that political intervention is not the answer. It rarely, if ever, works. The best politicians can do is keep the market open, so rip-off companies can be challenged by upstarts. The Government recently changed policy to encourage competition, simplifying tariffs. Since January, they’ve only been able to offer four tariffs. Under one circumstance they can offer a new extra tariff: for a group switch. That is to say: if a big enough bunch of customers break away and negotiate a better deal. This will be a tool which consumers can use to negotiate deeper savings.
I’ve worked in government, and I know how the theory goes: you try to create a fair playing field, then hope that competition will come. While Labour tends to place its faith on government to solve problems, Conservatives tend to place faith in people – and rely on those outside government to do the work, and to challenge the established order.
I’m now hoping to become a challenger. My project is called The Big Deal, and the concept is simple – to find a list of people willing to sign up, on whose behalf cheaper energy prices can be negotiated. Buying in bulk means savings, whether you’re purchasing washing powder, toilet rolls or energy. As many people as possible sign up on the website or by phone and we negotiate as good an energy deal as possible on their behalf. Our members are in no way obliged to take the deal. And, of course, if we can’t offer a significant saving, no one will take up the deal.
To date no energy company has made use of this fifth tariff. Yet in a market dogged by customer dissatisfaction, that tariff is a symbol of consumer empowerment. If The Big Deal attracts enough people we may create a first, and the market will be all the better for it.
Henry de Zoete was an adviser to Michael Gove from January 2010 to December 2013. He’s now co-founder of www.thisisthebigdeal.com. This is the first in what might be a series of ‘Start-up Saturday’ blogs - anyone starting up a business that may interest Coffee Housers is invited to email email@example.com with a proposed blog.
Tags: Big Six, Ed Miliband, Energy, Start-up Saturday