Throughout the UK, millions of consumers who haven’t switched contracts or changed providers for essential services are being penalised for their loyalty.
The consumer “loyalty trap” is one of the costliest problems affecting how we manage our money and is rife across the energy, telecom, insurance and consumer finance markets.
Two weeks ago we published our latest research into the loyalty trap in the UK energy market, revealing that many homes are currently paying an additional £450 each year for using the same amount of gas and electricity as a home on a more competitive tariff. Currently around 10 million UK homes are being penalised for their loyalty to energy providers.
Consumers fall into the loyalty trap when their existing fixed term contract ends and their supplier migrates them onto their “standard” tariff. These standard tariffs are typically some of the most expensive in the market resulting in homes paying hundreds of pounds extra each year.
Has COVID-19 impacted the size of the loyalty trap?
COVID-19 has and will continue to make the energy loyalty trap worse. As most of us have spent more time at home during the lockdown, many people will have used a lot more gas and electricity. This means the energy bills for those people on standard variable tariffs will have gone up by more than those on the cheapest available fixed tariffs.
Energy prices have also fallen in the last few months which has caused a widening of the gap between the cheapest tariffs available and standard variable rates. Our research shows that a typical energy customer would pay around £1,090 a year if working from home continues. But if they chose one of the cheapest deals, they would pay £705 for the same amount of energy usage.
Where is the loyalty trap worst?
The difference in how much you pay for your energy compared to other people is determined by where you live, as well as your energy provider and tariff. We found that even on the same tariff, a typical home in Oxford has to pay £69 more each year to use the same amount of energy as a typical home in Nottingham.
This inequality in energy prices between different regions comes from energy suppliers passing on the cost of using different energy networks. These networks costs make up about a fifth of each energy bill.
Currently the most expensive UK areas for energy are Oxford, London, and Bristol. The cheapest are Edinburgh, Newcastle, and Manchester
How to get out of the loyalty trap?
Getting out of the loyalty trap is easy when you use the Youtility app. The app securely connects to your bank account and helps you track how much you’re spending on your home finances. You can then switch to a new energy supplier within the app in less than two minutes without needing to make any phone calls or fill in any paper forms.
On average homes save £38 per month by switching from a standard variable tariff to the cheapest deal available. But the cost isn’t the only thing to consider. There are many suppliers with excellent customer service or who only use renewable energy. Therefore to help you search we give you personalised options depending on what you want from your provider. And unlike most price comparison websites, we’re completely impartial so we don’t have sponsored placements or preferences over which providers you switch to. Finally, our provider ratings are independently verified, regularly updated and provided by our friends at Citizens Advice.
Once you have decided to switch, the process should be simple and stress free. To guarantee this, Ofgem, the energy regulator, has introduced new rules which mean you’ll automatically receive at least £30 if you experience delays or mistakes when switching supplier. With this added protection and our easy switching process, we want to encourage you to finally escape the loyalty trap and take control of your bills.
