SMF Briefing: Illuminating the energy market – encouraging greater switching

It examines the characteristics of those who do switch, and considers what policymakers can do to boost consumer trust in the energy market. It draws on data from Ofgem, Consumer Focus, DECC, Which? and others. The Social Market Foundation has a long tradition of analysis in consumer markets. This briefing paper is informed by recent work on consumer trust in financial services and is the first of a series of briefings about the energy market in the UK. Key points in our briefing are:

• Household expenditure on energy has more than doubled since 2003, from £13.5bn to over £30bn – an increase of 126%;
• Consumer distrust in energy suppliers currently stands at 59%, making energy the most distrusted of all consumer industry sectors;
• Switching rates have fallen (from 9,584,000 in 2008 to 5,622,000 in 2012) and a majority of domestic consumers (62%) have never switched;
• People are more likely to get divorced than switch energy provider in their lifetime;
• An estimated £1.1bn or £195 per household was saved in 2012 by switching;
• Those who stand to gain most from switching are the lower social groups, but these are the groups least likely to switch;
• Increased switching can have positive implications for public spending.

We examine a number of potential policy solutions to low switching rates, which include:

• Simpler tariffs;
• Quicker switching;
• Fixed term contracts; and,
• Increased competition.