Regulators have dropped a plan that would have allowed energy companies to offer cheap deals to new customers in a bid to attract customers. The decision came despite support for the measure from Martin Lewis, who argued that it would boost competition and lower prices.
Industry regulator Ofgem introduced a ban on acquisition-only tariffs (BAT) in April 2022, at a time of turmoil in the energy market when several suppliers went bust. The ban effectively meant that energy suppliers could not try to lure customers away from other companies by offering extremely cheap tariffs.
Since then, competition in the market has virtually ceased as the price caps set by Ofgem have become standard for all suppliers. Earlier this year, Ofgem announced that it would lift the ban on these tariffs, a proposal that was welcomed by Martin Lewis and others.
At the time, the savings expert argued that lifting the ban was essential: “The energy market is broken. We must now do everything possible to stimulate competition and reduce prices. We should do everything we can to provide people with cheaper offers.”
However, today (30 July) Ofgem has announced a U-turn, meaning the ban on cheap deals will not be lifted as planned. The regulator said the decision had been taken after listening to the views of concerned consumer groups and the majority of suppliers.
Ofgem said: “Campaigners warned that proposals to lift the ban risk returning to an unfair market for inactive switchers – often referred to as a ‘loyalty penalty’ – and damaging consumer confidence. After considering the views of all respondents, Ofgem has decided to keep the BAT in place until at least its current expiry date of 31 March 2025.”
Charlotte Friel, interim director of consumer protection and retail markets, said: “We have heard the voices of consumers loud and clear – and we have responded. We are committed to acting in the best interests of all customers and the feedback we receive from the public, industry, consumer groups and charities is vital in shaping our work.
“Competition is an important factor in driving better standards, but consumer confidence is important too. And it’s clear that we are denying the best deals to everyone, undermining the progress we have made in restoring trust in the energy market. Customers have the right to vote with their feet and switch supplier if they want better service or more support. But keeping BAT means they don’t have to keep switching to find the best tariff.”
Richard Neudegg, regulatory director at price comparison and switching website Uswitch.com, said the decision would lead to higher bills.
“The decision to maintain the ban on pure supply tariffs (BAT) is a major blow to households looking for lower energy bills, especially with the harsh winter ahead,” he said.
“The ban was introduced as a temporary measure to stabilise the market and protect suppliers during the energy crisis. However, it has done nothing for consumers other than artificially inflate prices. Ofgem’s own analysis concludes that maintaining BAT is “likely to result in a net cost to consumers through higher prices”.
“It is disappointing that an economic regulator would act against the facts, particularly when making decisions that could reduce household bills. Now that the market is more stable, the ban reduces the ability of suppliers to offer reduced prices and better deals to both new and existing customers at a time when they are desperately needed.”
He added: “Lifting the ban would increase the pressure on providers to reward their existing customers with cheaper deals because if they don’t, another provider might offer them something better. In fact, they would then have a stronger reason to offer their own customers better deals because they would then be less likely to switch.”
