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UK Government Tackles ‘Loyalty Penalty’ to Stop Home Energy Customers Being Switched to Expensive Tariffs

Switch Home Energy Min

The narrative of UK households overpaying for their energy has been well-covered for several years. Back in 2019, the UK Government introduced a price cap. Reviewed every 6 months by Ofgem, this was created to directly combat findings that over 15 million households in the UK had been overpaying energy companies by £1.5 billion per year in 2018.

Fast forward to 2021, and the UK Government are set to clamp down further on the energy market with proposed legislation to tackle an emerging issue of the ‘loyalty penalty'.

Under the new legislation, Business and Energy Secretary, Kwasi Kwarteng, announced that the plans will help UK households find cheaper energy deals and will test automatic tariff switching. The plans will create an option to extend the price cap (scheduled to end in 2023) and help households on the most expensive contracts save up to £100 per year.

Switching to save energy

Whilst Ofgem reports that 5.8 million households switched energy suppliers in 2020, less than half of UK households regularly shop around for a better deal. With average savings of £290 recorded last year, it pays to compare energy suppliers using the great tools available online.

Using an energy comparison service can help you find more exclusive deals that are not always available if you switch directly with the supplier. Also, using an online service will save you time as you’re able to compare multiple energy suppliers within a few minutes.

When will the new ‘loyalty penalty’ system start?

The plans are set to be rolled out in 2024. This means that many tariffs would be automatically switched to cheaper ones unless you opt-out. The proposals include a framework for opt-in switching. This will allow households to receive personalised switching advice around tariffs offering better value. Ofgem hopes that the scheme will lead to stronger engagement with customers and create a stronger and more reliable energy market.

What does this mean for me?

Nothing will happen until 2024. The move is designed to stop energy suppliers from automatically switching customers on to ‘rip off’ deals. The aim is to create more savings for customers and help make more informed decisions about energy usage.

Your billing will remain the same for the foreseeable future. Any changes to pricing and tariffs will be communicated to you by your current energy supplier.

If you feel like you’re paying too much for your energy at the moment, compare energy suppliers here. Switching is easy and is fully backed by the energy switch guarantee.

From 2024, comparing and switching energy suppliers will be much more rewarding. Whilst there are significant savings available now, the proposal aims to create a more competitive energy market. This ultimately means cheaper energy prices.

The scheme only applies to home energy customers and is not relevant for business energy.

Will automatic energy switching work?

Ofgem ran trials in 2018/19 and reported great success. They found that customers using the scheme were 5 to 10 times more likely to switch to a cheaper tariff. The aim is to create more savings for customers and generate good levels of long-term competition in the energy market. Automatic switching trials helped a significant number of households drive down the cost of their energy bills.

Other announcements

Further details released drive efforts to tackle climate change by encouraging energy suppliers to offer fairer prices on green energy tariffs. The Government is also extending the Warm Home Discount Scheme. This will knock £150 off the electricity bills of many pensioners and low-income families until 2026. 

Ofgem also announced that a faster a more hassle-free switching programme will be rolled in 2022. This will significantly shorten the time it takes to switch energy suppliers. They will also continue the smart meter rollout in a bid to further help households manage and save on their energy.

If you feel like you’re currently paying too much for your energy, you can compare energy suppliers here.

You can read the original Government release here.

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