Aug 29, 2017
Big Six energy firms have made more than £7bn in just five years from overcharging their loyal customers
Largest gas and electricity companies offer discounted rates to persuade families to switch from other suppliers but then put up their charges a year later. It means if they fail to switch suppliers regularly, millions of customers of British Gas, SSE, E.ON, Npower, EDF and Scottish Power pay more than they need to. Extra charges mean Big Six have amassed a windfall of £7.3billion in five years.
The Big Six energy firms have made more than £7billion over five years by overcharging loyal customers, research suggests.
The largest gas and electricity companies offer discounted rates to persuade families to switch from other suppliers, but then put up their charges a year or two later.
It means that if they fail to switch suppliers regularly, millions of customers of British Gas, SSE, E.ON, Npower, EDF and Scottish Power pay more than they need to.
An analysis of official statistics has found that each family that has stuck with the same Big Six provider for at least five years has handed over an average of £853 more than it needed to. That works out at £14 a month.
The extra charges mean the Big Six have amassed a windfall of £7.3billion over the past five years, according to figures from the energy regulator Ofgem.
Hayden Wood, co-founder of the green energy firm Bulb, which conducted the analysis, said: 'These numbers show that so-called standard tariffs no longer have the customers' best interests at heart. The Big Six need to show they're putting customers first, instead of profits.
'Loyalty towards a brand is often rewarded, yet households who've put their trust for years in a single energy company are being forced to subsidise others who switch every 12 months.'
Before the general election Theresa May promised an end to the 'injustice' of energy firms ripping off poor customers. She said there would be a cap on expensive standard variable tariffs, delivering a saving of up to £100 a year for 17million households.
Since the election, the idea appears to have been watered down. Instead, Ofgem has been asked to come up with a more limited system of protection for 'vulnerable' customers. The overcharging uncovered by the analysis occurs because each of the Big Six firms offers cheap fixed tariffs to entice new customers.
These usually expire after one or two years, when the energy company automatically puts the customer on its standard variable tariff (SVT), which is up to 30 per cent more expensive. Earlier this month, for example, British Gas increased its electricity prices for SVT customers by 12.5 per cent, even though wholesale costs are falling.
The gap between the SVT and the cheapest tariff is known as the 'loyalty fee'.
Using figures from Ofgem, Bulb has calculated the average loyalty fee for the past five years.
For example, the average SVT across the Big Six firms last year was £1,065.97, compared with the average cheapest tariff of £897.18. This worked out at a 'loyalty fee' of £168.79.
Over the past five years, the loyalty fees added up to £852.75.
Using Ofgem figures, Bulb has worked out that 8.5million people with Big Six firms have not switched over the past five years. It means the six companies have made almost £7.3billion from customers who have not switched.
At the start of this month, British Gas increased electricity bills by 12.5 per cent despite falls in wholesale costs. It meant 3.1million households on standard variable tariffs will pay an average of £76 extra.
The company blamed the rise on green levies, government policies and a plan to spend billions installing smart meters in every home.
The firm was the last of the Big Six providers to increase prices after it promised in December to freeze tariffs until August. Rivals moved to put up bills at the start of the year.
Mrs May put energy bills at the centre of her election manifesto, promising a cap that would cut bills for millions on expensive SVT deals by around £100 a year.
But British Gas insisted government policies are the reason bills are going up. It said the wholesale cost of power has actually fallen by an average of £36 per customer since 2014.
However, it claimed this was wiped out by an increase of £88 to £98 per customer in various government levies, including those to support wind farms.