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Millions overcharged for energy

As many as 5 million people are being unfairly overcharged for their energy use, according to findings by the Istitute for Public Policy Research.

It found that some customers are paying up to £330 a year more than their neighbours even though they use the same amount of gas or electricity.

The IPPR argues that enforcing more cost-reflective tariffs would improve competition in the market and more than offset the cost of green policies for affected consumers.

IPPR analysis shows that people who use the same amount of energy and live in the same area are paying vastly different amounts for their energy because of the way they pay their bills.

Those who are on a ‘standard credit account’ (paying for their energy use in arrears) and are so-called ‘sticky’ customers because they are very unlikely to switch tariff or supplier, are most likely to be paying over the odds.

With more than 60 per cent of all households having never switched energy supplier and 34 per cent being on standard credit accounts, over five million may be being overcharged (see Notes to Editors).

The findings support claims that many consumers are being overcharged to subsidise heavily discounted, loss-leading offers for the small minority of customers who regularly switch suppliers. The findings also indicate a lack of competitive pressure in the less price sensitive end of the market.

IPPR tested tariffs for British Gas, EDF, E.ON, Npower, Scottish Power and SSE for three different payment types using a price comparison website for properties in London, Sheffield, Dumfries in Scotland and Aberystwyth in Wales.

Across each, Scottish Power was found to consistently offer the greatest differential between their standard and cheapest tariff at over £330.

The difference was greatest in Sheffield at £339 and second greatest in London at £333. Npower offered the second largest differential between these tariffs of up to £315. E.ON was £229.

Whilst British Gas, SSE and EDF all offered much smaller differentials of up to £126, £100 and £86 respectively, as a whole the difference in the tariffs offered could not be justified solely by the cost of different payment methods.

Though some energy suppliers have stopped loss-leading offers others continue. IPPR wants the Coalition government and energy regulator Ofgem to do more to remove anti-competitive practices in the energy market to encourage competition between a wider range of energy suppliers – and to act much faster.

Upcoming research from IPPR will demonstrate how improving competition in the market could more than offset the costs of green policies to consumers.
 
Nick Pearce, IPPR Director, said: “At a time when living standards are falling in real terms and more families are finding it hard to pay their energy bills, it is unacceptable that people are being overcharged for their energy use.
 
“The loss-leading by some suppliers is limiting competition in the energy market by making it harder for small suppliers and new entrants to compete. Ninety nine per cent of energy customers get their energy from the ‘big 6’ energy companies.