Engaging the public in the energy debate
The executive director of Which? asks how we can get more consumers engaged with the big debate abou
The executive director of Which? asks how we can get more consumers engaged with the big debate about the cost of energy in the future.
People tell Which? that the rising cost of energy is their biggest financial worry. The recent slew of price hikes from Britain's biggest energy suppliers can only have added to the new national fear of household bills.
Rapidly rising energy prices are certainly a major policy worry for the occupants of Downing Street and Chris Huhne; the fact that the Prime Minister recently hosted an energy 'summit' with the industry leaders, Which? and other consumer groups shows this is now a top priority. For Ed Miliband and his new shadow energy secretary, Caroline Flint, this is perhaps the clearest practical illustration of what he means by the big squeeze.
But if people are so worried - and indeed angry - about energy prices, then why do so few do anything about it? And how can we get more consumers engaged with the big debate about the cost of energy in the future?
There is plenty of evidence to suggest people aren't actively engaged in the energy market. Ofgem suggests that only 20% of customers have switched their energy supplier for a better deal in the last 12 months, and more than 50% have never switched. But this is no surprise when you consider how difficult people find it to even understand the deal they are currently on.
Which? recently conducted a test in which 36 people, including a solicitor, an engineer and an accountant, were asked to work out their domestic energy bill using information from suppliers' websites. Only one person, a company director, was able to work it out. The maths expert who oversaw the test told us that someone with an A-Level in maths would struggle to calculate the right answer.
That something as essential to domestic budgets as gas and electricity costs can be so hard to comprehend is ridiculous. Even if you are one of the few people that does know what a kilowatt hour is, quite how this relates to your monthly bill is a stretch. And in any case, most people don't have hours to spend making sense of how much fuel they've used.
This excessive complexity leaves many people simply thinking that energy companies are trying to pull the wool over their eyes. Only a quarter of people think energy companies are trustworthy - which ranks them even lower than the banks. And this is compounded when they see other poor behaviour, including doorstep miss-selling, poorly installed solar panels, and shoddy customer service by the suppliers.
No one expects people to love their energy supplier, but a basic level of trust is absent from this market. The situation is so bad that some companies are even struggling to hand out free insulation. When you consider that installing loft or cavity wall insulation could save people up to £310 a year - at a time when the average energy bill is over £1,300 - then this collective apathy starts to have a significant negative impact on disposable incomes.
To kick-start public engagement we need action from the energy companies, starting with help this winter. At David Cameron's summit, all agreed to publicise simple and practical advice about how to switch supplier, insulate your home and save money.
But these messages, coming soon after Chris Huhne's misreported but clumsy remark that consumers are 'too lazy to switch', have failed to resonate with a justly sceptical public.
We now need all the companies to offer more practical support before Christmas. Some have set the pace: Which? has called on all the major suppliers to replicate British Gas and EDF Energy's free insulation offers or SSE's promise of no more price rises until August 2012.
Next up, they must introduce simple and fair tariffs for all. This is long overdue. While Ofgem is taking steps in the right direction with reform proposals, they do not go far enough. Thousands of Which? supporters have e-mailed Ofgem demanding tougher action. All tariffs should be simply structured with a daily charge and a unit price allowing people to compare deals at a glance.
And reform of this vital industry must not stop there. Although five of the major suppliers are suspending their much disliked doorstep sales, if trust with consumers is to stand any chance of being rebuilt, all dodgy sales practices must end. Whether it's over the phone or in a shopping centre, when people come into contact with energy companies and ask for the cheapest deal, they should be told about the cheapest tariff. Full stop.
These are just the first steps that companies can take immediately. But the responsibility does not lie solely with the energy suppliers.
The Government must show leadership and really put consumers at the heart of its energy policy. With the Treasury taking an estimated extra £200 million in VAT as a result of energy price rises, it should return this to people struggling with their bills. The Chancellor should target this unforeseen revenue at extra help vulnerable consumers in his Autumn Statement.
Then Ministers must make sure that people are protected from poor advice and mis-selling as they press the industry to roll out smart meters and the Green Deal. And most important of all, they must make sure that these schemes offer real value for money and do not add even more unnecessary costs to people's bills.
Those closest to the energy industry know that the unprecedented scrutiny of the structure and operation of this market will not soon go away, including fundamental questions about the extent of effective competition in a business dominated by six suppliers. The plan for £200 billion of investment in our energy infrastructure is breathtakingly big, bold and risky: and it is dependent on consumers agreeing to foot much of the bill.
For the Government, regulators and industry leaders, this adds up to a multi-billion pound political nightmare that seems unlikely to be solved by current reform plans. Nor can the problems the industry faces be tackled unless the current levels of consumer distrust and anger are turned around, and quickly.
Maintaining a secure but competitive supply, sustaining the policy commitment to more rapid decarbonisation than almost any other nation, and meeting the outcry for affordable energy will take some radical rethinking.
Richard Lloyd is executive director at Which?