Why Switch?

It is a well-known fact: If you have stuck with your old energy supplier for years, it is certain to have landed you on a very expensive deal. The pesky Standard Variable Tariffs offered by the Big Six are just about the worst deal you can get for your gas and electricity. Which is why the Government is now cracking down on these tariffs and have implemented a price cap.

Most of us have also heard the advice from a commentator, suggesting that we switch supplier and compare tariffs between different companies regularly. We are told to go on switching sites to get a better deal.

However, did you know that while switching sites claim to be free for the consumer, in reality, you end up paying? This is just another, more subtle way of ripping you off. The large energy suppliers have been ripping you off for years. We are meant to be moving away from that and experience greater fairness in the energy market, through increased competition. But as it happens, the very mechanisms that are there to help you gain choices have inbuilt within them a lack of fairness.

Fairness

In what way are they unfair? First of all, switching sites are also companies with shareholders who want their dividends. To make money, the comparison sites take commission from suppliers (be it energy, insurance, or lenders). On the face of it, their services are free to the consumer, but the commission they charge will have to be paid by someone. Who? You, of course – the consumer, who else? In essence, we all pay for the commissions through increased energy prices. It appears that energy switching sites charge an average of £30 per fuel per customer (i.e. £60 if you are signing up for both gas and electricity). That extra cost has to go somewhere – it ultimately will end up on your bill.

Most energy suppliers offer a series of tariffs, luring people in on deals initially. Unless you are alert, you are likely to roll onto a more expensive tariff after a while. For the savviest of us, frequent switching saves us from this. But by using comparison sites regularly to get the best deals, we ensure that those very sites get regular commissions from us, that way contributing to increased costs and therefore ultimately the tariffs. The end result? Artificially high prices. The victims? Us, the people.

Secondly, the comparison sites are not unbiased, despite what we are led to believe. A lot of the switching sites will only list companies who pay them a commission. Some will also list the rest, but only if the consumer ticks an obscure box, asking for all suppliers to be listed. If choosing a non-paying supplier, the consumer has to work harder to find them and make the switch. In addition, there are examples of switching sites featuring paying sites much more favourably in their descriptions and also more prominently, in a similar way paid ads to feature prominently at the top of google search pages.

Who Wins?

How does this system of commission based switching sites give the consumer a fair, unbiased read of the market? How does it help them get the best possible deal? The consumer is still left with a confused market in front of them and no (or very few) tools that give them an objective overview[1].

New companies have sprung up that make the switches on behalf of the consumer on a regular basis, in order to ensure people are always on the best deal. However, while these companies may make your life simpler, they too need fees for themselves and often use switching sites to find the best deals for the consumers, adding a significant extra level of cost to your bills. It may be easier – but fair, unbiased and the best deal? Not necessarily…

As Claer Barrett, editor of FT Money has said, ‘the problem with switching is that you have to keep doing it to avoid being gouged on price. Wouldn’t it be better for consumers if energy companies, banks and insurers rewarded our loyalty instead?’[2]. How should a company be set up, to ensure that the price is always fair, tariffs transparent, and loyalty rewarded rather than penalised? That is precisely what we asked ourselves before setting up People’s Energy. Perhaps it is time to consider a deal that guarantees you the best deal at all times, as you get the profits yourself, rather than the supplier or switching sites shareholders? A deal that means you never have to switch again?

 

[1] There are a few, less known exceptions. For example, Green Electricity Marketplace doesn’t accept commission fee from suppliers, in order to demonstrate the independence of their tariff ratings.

[2] Financial Times, September 29, 2017: Price comparison websites are far from epic https://www.ft.com/content/26cbde38-a38d-11e7-b797-b61809486fe2