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Millions of UK households set to overpay for energy

· 3 min read

As things stand, millions of UK households are going to overpay for their energy next year. Research by Bulb shows customers could end up paying £200 more than they could be, on average. The main reason is the so-called energy loyalty penalty, which essentially means sticking to your supplier instead of switching to a cheaper alternative leaves you out of pocket.


As things stand, millions of UK households are going to overpay for their energy next year. Research by Bulb shows customers could end up paying £200 more than they could be, on average. The main reason is the so-called energy loyalty penalty, which essentially means sticking to your supplier instead of switching to a cheaper alternative leaves you out of pocket.

While loyalty is generally something companies reward customers for, it’s not always the case with energy tariffs. The industry is notorious for the loyalty penalty, against which the Government has vowed to take action. Customers who stick to their energy supplier are shown to pay an average of 23% more compared to new customers.

Bulb’s research, reported by the Daily Mail, shows the average difference between a supplier’s cheapest deal and the standard variable tariff price is £132.27. But different suppliers have very different gaps in their pricing. Scottish Power customers could pay £177.17 more on the standard tariff compared to its cheapest deal. Except for Bulb itself, which offers a single tariff giving all customers the lowest possible price, the research showed Octopus Energy has the smallest gap, with their standard tariff costing just £10.68 more than its cheapest deal.

Energy suppliers keep the standard variable tariffs at the same level because of the energy price cap, which launched in 2019 to keep the cost of energy down. The cap is currently set at £1,042, with more considerable savings available for customers using prepayment meters. Suppliers cannot charge above the price cap rate, but they can offer cheaper deals. Many companies do this to attract new customers. However, loyal customers could be losing out. 

Making switching easier

Many UK households stay on more expensive standard variable tariffs instead of switching to cheaper fixed-term tariffs. The Government's Energy White Paper outlined plans to make the switching process more straightforward. There is also a plan to test a process that would automatically switch consumers to fairer deals to remove loyalty penalties. However, these reforms are still months away from implementation. For now, consumers can rest assured the price cap limits what suppliers are allowed to charge. 

However, savvy consumers can already switch to better energy tariffs. Energy price comparison websites offer consumers the option to compare their current deal with others on the market. These could help you find a cheaper deal and keep more of your hard-earned money in your pocket.

It is worth checking with your energy supplier to see what tariff you are on. You could save a lot of money by simply contacting your energy provider and asking them to put you on the lowest tariff. Comparing different suppliers is also vital to ensure you find the best deal. The cheapest deal from one supplier might be better than their standard tariffs. But you could still end up paying more than if you switched energy suppliers altogether. For example, Octopus Energy's cheaper deal was more expensive than the most affordable deal from Scottish Power. It’s a good idea to check your energy tariffs and use a comparison site to ensure you’re not one of the millions of UK households overpaying for energy in the next 12 months.

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Krista Lomu
Krista Lomu
Krista has been writing about finance for nearly a decade. Based in London, she hopes to turn even the most complicated topics to approachable and interesting for readers. When she's not writing and working with small businesses, she likes to read, watch football and play games - fuelled on by many cups of coffee!
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