Jeff Salway: Labyrinth of tariffs leaves us powerless to tackle the great national energy scandal

The energy market has come a long way since the mid-Nineties, when competition was lacking and the odds were stacked against households. Or has it?

The reforms that in 1998 opened up the market to new suppliers promised so much and, initially, delivered. But who has benefited the most? Personally I suspect the big six suppliers edge this one.

It should have been so much better, giving households the freedom to move freely between supplier to secure the best price and service. That is technically the case and I’ve long been an advocate of the power of switching. Only by moving supplier can households be sure of getting a decent deal in an industry where loyalty doesn’t pay.

But the domestic energy market was this week described by Meg Hillier, the shadow energy and climate change secretary, as “the great national scandal”. And despite the unrelenting efforts of the banks, it’s hard to argue with her.

Because somewhere along the line the odds shifted back in favour of the suppliers, and heavily. From mirroring each other’s price moves – even though they pay different prices for their wholesale supply – to introducing umpteen tariffs that have served only to complicate matters, the big six energy suppliers have corrupted the market.

And for all the hard talk from energy regulator Ofgem and the government, too little is being done to reform their behaviour. The industry’s culture now compares with that of the banks, where consumer interest comes a poor second to profits and service is too often just another form of exploitation.

Energy secretary Chris Huhne complained recently that too few people take advantage of their right to switch. He’s right, to an extent. Many households can save hundreds of pounds a year by moving off their incumbent supplier’s standard deal to a more competitive alternative. But Huhne fails to recognise how unnecessarily difficult it has become. Whether because of complex tariffs – and there are now around 400 available – or just through plain mis-selling, too many people have found that switching doesn’t always pay. A convenient state of affairs for suppliers, for whom apathy pays dividends.

Transparency – of prices and tariff arrangements in particular – is key to changing this, but still too little is being done, despite evidence of a growing political will to tackle the energy market.

Two surveys by Which?, the consumer group, are instructive. The first, earlier this year, revealed that even banks are now more trusted among consumers than energy suppliers.

The second piece of research, conducted more recently, asked a group of 36 people to work out the cost of a domestic energy bill, based on information from the different providers. Just one managed to do it, and it wasn’t the accountant. The head of the mathematics exam board who oversaw the test concluded it was “unrealistic to expect the public to be able to find the best deal when faced with such complex tariffs”.

With any real improvement a long way off, perhaps the best response is to shun the big six altogether. The emergence of smaller suppliers, including Ovo, First Utility and now Cooperative Energy, all of which seem to understand where the big six have gone wrong means that in many areas there’s now a genuine alternative to the status quo.

Beware the annuity trap

TALKING of industries failing to deliver what their customers really need, the Association of British Insurers (ABI) is trying again to boost the number of people who shop for an annuity when they retire.

By getting the best annuity possible the retired can improve their income throughout retirement by up to a fifth. Yet nearly one in three surveyed by the ABI earlier this year immediately accepted the annuity offered by their existing pension provider.

If you’re with one of the pension providers offering those competitive rates, you’re in a good place already, but there’s no harm in looking around first. The ABI wants to ban insurers from including annuity applications in the information packs they send to customers approaching retirement. It’s a step in the right direction, but it’s still not enough. Only by making shopping around the default option at retirement can the ABI stop thousands of people a year from wasting their lifetime savings by taking the wrong annuity decision.