Ofgem to lift ban on acquisition-only tariffs before winter

Ofgem has confirmed its intention to remove the ban on acquisition-only tariffs (BAT) from October rather than keep it in place until next March.

The energy regulator said the ban, which was introduced as a temporary measure in April 2022, had now fulfilled its core purpose and that consumers would see a direct benefit from removing it.

One price comparison website called the move a “no-brainer”, however an energy retail chief executive told Utility Week it was “terrible news for customers” and accused Ofgem of being in thrall to switching guru Martin Lewis.

The regulator had already extended the BAT, which prevents suppliers offering cheaper deals exclusively to new customers, until 31 March 2025. However, in announcing that decision in February, Ofgem indicated it would like to see the ban removed earlier.

In a consultation launched on Tuesday (14 May), the regulator confirms that unless there is a “compelling and persuasive reason” to keep the ban, it will be lifted on 1 October to coincide with the quarterly change to the price cap.

The consultation sets out Ofgem’s view that there is no evidence previously disengaged customers are more likely to switch with the BAT in place or that it has forced suppliers into focusing more on service quality and innovation.

It says that removing the BAT would benefit the majority of customers by stimulating price competition and, while some vulnerable or disengaged consumers could see higher prices, this is “not a given, nor necessarily likely”. It points to the price cap as the primary means of protecting customers from the so-called loyalty penalty.

It also points out the current BAT has led to an increase in retention-only tariffs, where suppliers offer a deal to existing customers but not new ones. Ofgem warns this creates its own inequality and transparency issues. The derogation to allow this would end with the lifting of the BAT.

So Energy co-founder and interim chief executive Simon Oscroft told Utility Week removing the BAT would see the market “move back to a world where suppliers are incentivised to offer cut-price deals for the price comparison websites and hide those same deals from their loyal customers”.

He added: “This is terrible news for customers. It brings back the loyalty penalty, creates a bad customer experience and destroys trust just as suppliers need to play a pivotal role in the net zero transition. Suppliers need to be collecting customer consumptions down to the half hour and we need to be saving customers money by optimising usage and controlling devices. If suppliers are lying to their customers about the tariffs available to them, why should customers trust them to do this?”

Ofgem has previously pointed to support from MoneySavingExpert founder Martin Lewis for removing the BAT. On Tuesday, Lewis reiterated the need for the ban to be lifted, saying it would force energy suppliers to compete for custom again.

He said: “In normal times I wouldn’t call for firms to be allowed to offer new customers cheaper prices than existing, yet these aren’t normal times. The current UK retail energy system was built on the premise that firms would fight each other for customers and compete on price – yet that’s hardly happening.”

Uswitch also backed the move, with its director of regulation Richard Neudegg saying it was a “no-brainer to improve the chances of decent fixed deals in time for winter”.

He added that customers needed good value fix options to give them more certainty on their bills in the face of an ever-changing price cap and that removing the restriction would incentivise providers to work harder to compete for customers on price, service and choice.

However, Oscroft said: “Ofgem claims it is speaking for the majority of customers in wanting to return to intense competition on price, but I don’t think that’s the case. They clearly care deeply about what Martin Lewis thinks on this. The issue with that is that he is speaking on behalf of the 10% of active switchers who are constantly shopping around for the best deals. The other 90% just want a fair price, and don’t want to be lied to when suppliers say they are being offered the best deal, and definitely don’t want to ring suppliers up at the end of to haggle over their tariff.”

Tim Jarvis, Ofgem’s director general, markets, told Utility Week the BAT was designed to be a time-limited measure and that “as the market continues to stabilise, now is the right time to consider removing it”.

He added: “Other measures we have introduced to make the market more resilient – in addition to the role the price cap plays to protect loyal customers from being exploited – lessens the need for a ban on targeted introductory tariffs.

“We continue to look at the bigger picture as part of our review of standing charges, affordability and debt. A variety of different tariffs have returned to the market and switching has been picking up. We will continue to monitor competitive developments closely.”

Ofgem is seeking responses to its minded to position by 11 June with a response promised the following month.

Separately to this consultation Ofgem included the BAT as one of a number of possible replacements for the current price cap in a discussion paper issued in March.