Ban on acquisition-only energy tariffs to remain in Ofgem U-turn

Ofgem has announced that the ban on acquisition-only tariffs will stay in place, just two months after it proposed scrapping it.

The ban on the tariffs – cheaper prices that are only for new customers in order to lure them away from their existing supplier – was introduced as a short-term measure in April 2022 to protect consumers during the energy crisis and was due to be lifted in March next year.

In May, the regulator said it was the right time to consider removing the ban as the energy market continued to stabilise, to drive a faster return to competition and better price savings and service standards for consumers.

But it has now said it will remain in place at least until its current expiry date of March 31 next year to ensure all households can access the best available deals.

During a statutory consultation in May, campaigners warned that proposals to remove the ban risked returning to an unfair market for inactive switchers – often referred to as the “loyalty penalty” – and damaging consumer trust.

They added that the ban also ensured that millions of customers in debt, who may not be able to switch to a new firm for months or even years, are able to access a better deal with their current supplier.

Charlotte Friel, Ofgem’s interim director for consumer protection and retail markets, said: “We have heard the voices of consumers loud and clear – and we have responded.

“We are committed to acting in the best interest of all customers and the feedback we get from the public, industry, consumer groups and charities is vital in shaping the work we do. The responses we received showed a strong strength of feeling against short-term cut-price tariffs that shut out a supplier’s existing customers.

“Whilst competition is an important part in driving better standards, so too is consumer trust – and it is clear that denying the best deals to all risks undermining the progress we have made to restore confidence in the energy market.

“Customers have the right to vote with their feet and switch suppliers for better service, or more support, but retaining the BAT will mean that they don’t have to keep moving to chase the best rate.”

Ofgem said it is currently considering the future of price protection, including the suitability of the price cap and a potential permanent ban on acquisition tariffs.

Consumer campaigners welcomed the move.

Gillian Cooper, director of energy at Citizens Advice, said: “Ofgem’s decision to extend the ban on acquisition-only tariffs is the right one. It means that customers who stay with their supplier won’t be punished for their loyalty, and the 2.3 million households in debt to their energy supplier who can’t switch can still access better deals.

“The energy market is increasingly complex and this decision will provide some certainty to the millions of customers worried about their energy bills and who rely on a stable energy market.”

Which? director of policy and advocacy Rocio Concha said: “Removing the ban would have risked shutting existing customers out from the best deals, opening the door to loyalty penalties. Our research has shown that consumers overwhelmingly believe this is unfair – even when they might stand to benefit.

“It is particularly encouraging to see that Ofgem intends to extend the ban until 2026, which will give the regulator the chance to properly consider whether it should become a permanent fixture of the market.”

Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said: “With energy debt levels rising due to the record energy prices, now is not the time to allow firms to offer these tariffs, which also disadvantage existing loyal customers and risk creating market instability.

“Even energy firms such as Eon, Octopus, So Energy and Rebel Energy opposed lifting the ban along with consumer groups such as Citizens Advice, Fair by Design and Which?

“We’re pleased Ofgem has taken the side of struggling households on this issue.”

However Richard Neudegg, from comparison site Uswitch, described the decision as a “hammer blow” to households seeking cheaper energy bills.

He said: “The ban was introduced as a temporary measure to help stabilise the market during the energy crisis and to protect suppliers, but it has done nothing for consumers other than artificially raise prices.

“Ofgem’s own analysis concludes that retaining the ban is ‘likely to result in net costs to consumers through increased prices’. It is disappointing to see an economic regulator go against the evidence, especially on choices that could bring down household bills.”