Consumers switching energy suppliers may not save money - report

Consumers switching energy suppliers in a bid to save themselves money may actually have done the reverse, according to a new report presented by Norwich researchers today.

Consumers switching energy suppliers in a bid to save themselves money may actually have done the reverse, according to a new report presented by Norwich researchers today.

Despite the energy regulator celebrating the fact that four million customers switched suppliers in 2006, results from the ESRC Centre for Competition Policy at the UEA suggest that many of these consumers may have actually made themselves worse off as a result.

Focussing only on consumers who switched electricity supplier specifically in order to save money, the results suggest that at least 20pc switched to a more expensive supplier, losing around £14 a year (about 6pc of their bills).

Only a fifth of switchers, at most, managed to find the best market deal for their individual consumption level and payment method; overall, switchers only managed to obtain half of the maximum potential savings available to them.

The research, carried out by Chris Wilson (now at the Department of Economics at the University of Oxford) and Catherine Waddams, director of the UEA centre, was presented at a conference in Warwick today.

“At a time of fluctuating energy prices, when regulators and consumer bodies are urging consumers to save money by changing suppliers the results establish that consumers may make poor decisions when switching, despite an official focus on 'informational remedies' to empower consumers to make better decisions in the market place,” said Prof Waddams

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“Such poor comparisons by consumers can damage their welfare, both directly in foregone gains, and indirectly for all consumers by delivering an increased level of market power to firms, enabling them to increase prices.”

The findings raise questions about the extent to which consumer choice is an adequate replacement for regulation in encouraging competitiveness and disciplining suppliers.

Two independent surveys were used to compile the report, which both asked consumers about their switching behaviour, details of their electricity consumption and their reasons for switching.

However, Geoff Slaughter from Uswitch.com, an impartial online and phone based comparison and switching service, said he thought much had changed since the original research (in 2000 and 2005) had been carried out.

“There were 13 price rises in 2006 for all the major energy suppliers which saw four million switch. A huge number of customers switched based on the savings they could make which could have been as much as £325 a year, which was the difference between the dearest and the cheapest.”