Down With The Attention Tax
Why Ofgem's move to end the ban on acquisition-only tariffs is a step backwards
Ofgem has announced their ‘minded to’ position on whether energy retailers should, once again, be able to have tariffs that they only offer to new customers; so-called ‘acquisition-only’ tariffs. The ban on these was implemented during the energy crisis in an effort to stabilise the market. Ofgem have been quite explicit that they want it to end, because they think it’ll benefit consumers.
Normally I’m pretty much in favour of companies being able to sell their products any way they want; after all, that’s how we find out what consumers actually want to buy. The problem with the energy retail market is that it’s so cripplingly constrained by its regulatory regime that Ofgem is the one who decides how energy can be sold to you, not the company. And while intuitively you might think companies offering lower prices to consumers is a good thing, there is very much a sting in the tail.
Bringing back these tariffs means that once again getting the best deal on your energy bill involves flipping to a new company as soon as your tariff ends. Acquisition-only tariffs are sold below the market rate because companies calculate - correctly - that a significant proportion of consumers won’t switch at the end of their contract and will simply absorb higher costs.
Put simply, this is a market structure that demands your attention and penalises you if you don’t give it. But it’s also a market that, again because of the constraints Ofgem places upon it, sells an undifferentiated commodity. The electrons and molecules you get from one supplier are identical to the electrons and molecules you’ll get from another. It’s therefore boring, but nonetheless obliges you to pay attention to it.
Many of us choose to engage despite this structure not because of it, because cost is important to us. But so is time and effort, and the time and effort you need to spend in switching your contract is something that the most vulnerable in our society have the least of.
This therefore means that acquisition-only tariffs are a de facto transfer of wealth from the poor, elderly and disabled to the engaged middle classes. This is why consumer champions like Citizens’ Advice are opposed to lifting the ban.
The right move, and the one Ofgem should take, is to rethink the retail market entirely and move towards a market that consumers actually want to engage in and don’t need an attention tax levied on them to ensure that they do so. We laid out the steps they need to take in our Rethinking Retail Energy report last year: stop thinking about competition as something they can manage through numbers of people switching, and instead understand that it’s a process of rivalry between companies, all innovating to find and sell the things customers want.
Unlocking that rivalry means being able to offer novel products for customers with heat pumps or electric vehicles, and it means unpicking some of the regulatory crust that’s grown on the market over the last two decades, as well as finally making suppliers deal with actual rather than estimated consumer demand. This would be a big shift, but the upside for consumers would be tremendous.
The alternative - and what I fear this move by Ofgem indicates - is to learn none of the lessons of the 2010s and head straight back into a rigid market that actively penalises the least well off. Given the level of opposition to this move, I hope they’ll think again.