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Something must be done

Posted on 16 January 2012

So said a shocked King Edward VIII when he visited coal miners in the depressed Welsh valleys during his brief reign. A similar tone of helplessness could be heard last October at David Cameron’s summit meeting with the Big 6 energy suppliers, at which the Prime Minister harangued the suppliers to do more for hard-pressed consumers. This followed the succession of price increases averaging 17% for gas and 10% for electricity announced last summer. This week’s Big Energy Week, promoted by Citizens Advice Bureaux and a number of consumer groups and charities, is the one tangible result of that summit: a well meaning public information campaign designed to help people save money by shopping around and cutting back on their energy use. It’s easier for Co-operative Energy than it is for most suppliers to point people to our cheapest payment method and our cheapest tariff. We only have one tariff because we like to keep things really simple. It would be great if this latest attempt to stimulate consumer action were successful but, sadly, “informational remedies” as economists like to call these campaigns generally meet with limited success unless sustained over a very long period across multiple media channels (like the digital switchover project) and/or accompanied by nudges (like getting households to sort their waste for recycling). Doorstep engagement, were it not so discredited in the energy industry by appalling sales practices, remains one of the most effective ways to reach and influence households. The next big opportunity for the industry to speak face-to-face to the public about energy is during the roll-out of smart meters, but that won’t now start until Autumn 2014. In the meantime, the Government will need to be bolder and more directive if it really wants to help hard-pressed energy consumers. For example, if Ofgem’s proposals on tariff simplification don’t work (and more on that subject another time), the Government should regulate to ban the use of loss leading tariffs – unprofitable tariffs launched by suppliers to top the switching site league tables and paid for by the profits earned from the majority of customers still on uncompetitive standard tariffs. These loss leading tariffs are good news for the tiny minority of people willing to put up with the chore of constant switching, but they create high transaction costs and are paid for by the majority of disengaged consumers. Some would say: “tough”. If the majority are lazy and the minority are conscientious, good luck to the switchers. It’s a free market, after all. It just seems like a pretty dysfunctional way to provide a basic, everyday, household need at fair prices. Surely, something must be done.

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