Twelve million households could be hit by a loyalty penalty in 2021, overpaying by an average of £200 to their energy supplier, new research has revea
Twelve million households could be hit by a loyalty penalty in 2021, overpaying by an average of £200 to their energy supplier, new research has revealed.
Those still on expensive standard variable tariffs will be paying a couple of hundred pounds more than those who have signed up to cheaper fixed-term rates, according to energy provider, Bulb.
Consumers affected by the loyalty penalty, which means loyal customers get charged more than new ones, pay an average of 23 per cent more compared to new customers joining on the cheapest rates.
This is a long standing practice but the Government has now promised to take action in its Energy White Paper.
Millions of households stuck on default tariffs will be overpaying by hundreds in the new year
It aims to do this by offering people a simple method of switching to a cheaper energy tariff and testing how reliable it would be to automatically switch consumers to fairer deals to tackle loyalty penalties.
The move is a further step to reduce customers’ energy bills after it introduced the price cap last year, limiting the amount providers can charge households.
However, reforms are still months away, risking millions of people overpaying for energy.
Consumers who do not want to wait for government action can already make savings today by switching supplier using price comparison sites.
Hayden Wood, co-founder and chief executive of Bulb, said: ‘You would be shocked if your local coffee shop started charging you more because you’re a regular – it should be no different with energy companies.
‘The challenge now is to ensure we find the right solution to this problem. It would be great to see energy customers being given the same protections as they will soon get when they buy home or car insurance.
‘This would stop unscrupulous companies overcharging people in the hope that many will not see their prices going up.’
|Supplier||SVT price||Cheapest deal||Difference|
|Source: Data was taken from uSwitch for the standard variable rate and cheapest available tariff for each energy company list|
Which suppliers have biggest gap?
On average, the gap between energy suppliers’ cheapest deal and their standard variable tariff price is £132.77.
However, Scottish Power is the provider that has the biggest difference between tariffs at £177.17.
The Big Six’s cheapest deal costs £865.16 but those joining on its default tariff will be charged £1,042.33.
Shell Energy was the next firm with the biggest variation with it’s SVT also coming in at £1,042.33 whilst it’s cheapest deal is £882.17 – a difference of £160.16.
Ovo is the third supplier with the largest pricing gap between its default tariff and cost for new customer.
It is charging SVT customers on average £1,041.57 whilst its cheapest deal is just £884.63 – a difference of £156.94.
Meanwhile, challenger suppliers Bulb and Octopus Energy have the lowest disparity – with Bulb charging the exact same for all customers as it only has one tariff at a cost of £966.45.
Whilst this means all customers are equal, other providers do still offer cheaper fixed deals so it is important to compare before switching.
Octopus Energy, which will begin supplying electricity to homes in Japan after striking a deal with Tokyo Gas, has a difference of just £10.68.
It charges its SVT customers £963.67 whilst its cheapest deal is £952.99.
The reason many firms keep their SVT prices at the same level is due to the energy price cap which was introduced by Ofgem and launched in January 2019 as a way of keeping down the cost for households across the UK.
It is currently set at £1,042 for standard variable tariff customers whilst the savings are bigger for prepayment meter customers whose bills are capped at £1,069.
Suppliers are not allowed to charge above the cap but they can offer cheaper deals for savvy customers.
Recently it was revealed the cap has been extended will remain in place until the end of 2021 when the level will be reviewed.
However, customers stuck on pricey tariffs are encouraged to use price comparison services to see if they could save money by switching to a different supplier or move to a fixed tariff, which are typically much cheaper than default options.
Could you cut your energy bills… or help the planet and go green?
Millions of people could be needlessly overpaying for their energy as they fail to switch to providers who offer cheaper deal.
They may also be missing out on the opportunity to help the planet and fight climate change, by switching to green deals that offer electricity from renewable sources and more environmentally-friendly gas.
With our partner, Compare the Market, you can compare energy tariffs and exclusive deals.
Why not find out if you could save hundreds of pounds a year on your energy or go green?