Greg Jackson talks Relative Price Cap on BBC Radio 4 Today Programme
14th April 2017
Our founder, Greg Jackson, joined BBC Radio 4's Today program to discuss John Penrose MP's proposals for a relative price cap.
Greg and Richard Neudegg (USwitch) discussed the proposed price cap, limiting the difference between a supplier's cheapest available deal and its Standard Variable Tariff (SVT) with Mishal Husain.
You can read why we support the price cap in our recent blog. In short, we believe that customers have for too long been ripped off by Big Six "tease and squeeze" pricing, and the repeated calls to switch every year haven't solved the problem. A price cap would force these suppliers to treat their loyal customers fairly, or risk losing business to suppliers who value transparency and honesty above profiteering.
You can listen to the program here (the discussion starts around 34 minutes in). For answers to some of the most pertinent questions raised in the discussion, and of the price cap proposal, please read below.
Wouldn't a relative price cap just lead to the Big 6 keeping their Standard Tariffs (SVTs) high?
Not for long. These companies are naturally losing customers to the new entrants in the market. So if they're losing customers, but can't win any new ones, it's not viable for long. They'd face demands from shareholders to cut their costs and to start winning new customers.
And that's why a relative price cap is such a good idea for everyone.
Why is there any difference at all between Octopus's SVT and its fixed tariff?
The difference is only about £15 – and sometimes the difference is negative (this compares to the Big Six where it can be close to £300!).
In our case, the difference comes about because we vary our SVT from time to time to reflect wholesale prices, whereas our fixed prices will be fixed based on where wholesale markets are for up to a year ahead. That means there's always going to be some difference.
The key thing is that the Big Six set their SVT high so they can subsidise their inefficient businesses, subsidise loss-making "teaser" tariffs, and boost their profits.
Would a relative price cap reduce the incentive to switch?
Not at all! With 45 or so suppliers competing for your business, a customer on a typical high SVT could still save up to £300 by switching to an efficient new supplier – but they wouldn't get ripped off at the end of it.
Shouldn't we give the CMA time to take effect?
The CMA (Competition and Markets Authority) basically relies upon the same failed idea of increasing switching that has only led to this awful position where most households are getting ripped off. After 20 years of a competitive market, 66% of households are still paying far too much for their energy. It's time to end this.
The relative price cap will give customers the choice to stay where they are without fear of being exploited, and remove the need to hunt every year for a fair price. It could be a step towards reducing the number of tariffs on the market, making buying energy even simpler for customers. Introducing a fairness mechanism into the UK energy market is long overdue and benefits everyone – from those who buy energy to the suppliers who are forced to improve their efficiencies to compete.
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