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A welcome attempt to fix the broken energy market

11 April 2012

2:03 PM

11 April 2012

2:03 PM

Back in October, Ofgem produced a report exposing the failure of the UK’s energy market. It showed that the
supplier’s profit margin on the average fuel bill had shot up from £15 to £125 in just four months. As I said at the time,

‘This wouldn’t be possible in a market that was working correctly. If customers were shopping around for the best deal, suppliers would have to undercut each other – and there’s
plenty of room for them to reduce prices while still turning a profit (£125 of room, in fact). But Ofgem’s figures show this isn’t happening.’

And why isn’t it happening? Because, in Ofgem’s words, ‘Many consumers see the energy market as complex and hard to navigate. Only a small number actively seek out better deals and
welcome having choice’. They blamed the energy suppliers for this, accusing them of ‘stifling competition through a combination of tariff complexity, poor supplier behaviour and lack of
transparency’. So, now, the government’s stepping in to try to sort them out.

Nick Clegg has announced a raft of measures to help customers to make sense of the energy market, find a better deal and hence reduce their bills. Speaking at Canary Wharf today, he said:

‘Right now, seven out of ten customers are on the wrong tariff for their needs, so are paying too much. Yet people rarely switch, despite the fact some families could save up to
£100 a year. There are currently over 120 different tariffs, making it very difficult to know where to start. That is going to change. As of this Autumn, your supplier will have to contact
you with the best tariff for your needs. And if you call them, they’ll have to offer you the best deal too.’

This new transparency has come about thanks to an agreement the coalition has secured with the ‘Big Six’ energy companies, who supply 99 per cent of homes. It is an important part of the
government’s efforts to inject some more competition into the energy sector and get the market working as it should — and the lower bills that brings will be a welcome relief for hard-pressed
family budgets.

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