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CMA report: UK SMEs losing £500m on business energy

The provisional findings of a comprehensive year-long investigation of the energy market will make very interesting reading for UK small to medium sized businesses.

Divided between two lengthy reports that examined the energy market for both domestic consumers and small to medium sized businesses, the Competition and Markets Authority (CMA) found “considerable variation in the prices” paid by SMEs, including microbusinesses. It estimated that fairer competition could save UK SME customers £500 million a year, although it added that this “may be an underestimate of the extent to which prices have been above competitive levels”.

Comparing business energy prices

The CMA found that much of the problem stems from businesses not being engaged in choosing their energy contracts, an observation that will come as little surprise to overworked owner-managers.

There were “positive signs of a recent increase in switching between suppliers” but this came with concerns “many microbusinesses appear to show limited engagement and that they have limited interest in their ability to switch energy supplier”. Strikingly, a massive 45% of microbusinesses were on default electricity tariffs (i.e. placed on a tariff that had not been actively negotiated) in 2013.

Unnecessary overpayment was particularly marked with rollover tariffs (tariffs that customers would pay if they took no action at the end of an existing fixed-term contract), retention tariffs (tariffs that customers actively renegotiate with their existing supplier at the end of an existing contract), and deemed tariffs (a tariff paid until a customer, typically in new premises, contacts its supplier to enter into its first contract).

The CMA report points to a lack of transparency. Roger Witcomb, Chairman of the energy market investigation, said: “The confusing way energy is measured and billed can make comparing deals understandably daunting.”

Switching to a new energy supplier

Third Party Intermediaries (TPIs) were highlighted as a potential help to business customers. However, the actions of some less scrupulous organisations have led to a number of complaints to official bodies (although, as the highest rated business energy compare and switch provider on Trustpilot, is not included in this rogues gallery).

Despite these complaints, the CMA expressed “concerns that the less engaged customers on these tariffs are not exerting sufficient competitive constraints on energy suppliers”, highlighting the potential to be shunted into default tariffs (auto-rollovers and replacement contracts), or if they are receiving energy supply in circumstances where they have not agreed a contract (deemed and out of contract tariffs).

This weak customer response, especially from microbusinesses, amounts to an adverse effect on competition, giving suppliers “a position of unilateral market power concerning their inactive microbusiness customer base which they are able to exploit through their pricing policies”.

Fighting for the best deal on business energy

The findings of the report are long overdue, according to CEO Ivan McKeever. “UK small and medium sized businesses have been the forgotten sibling of corporates and consumers for too long. As SME specialists we understand that smaller businesses lack the time to compare business energy tariffs and switch suppliers. We back the CMA’s report and hope that its recommendations are put into action in a timely fashion.”

Among the CMA’s recommendations are measures to reduce barriers to information in the SME energy markets and prohibiting the auto-rollover of microbusinesses. The latter point is something that has previously campaigned for and is currently researching.

In the meantime, businesses can get a no-fuss, no-obligation price comparison and switch suppliers in just 20 minutes. Our service is focused on small to medium sized businesses and we always strive for clear, reliable service. Give us a call on 0330 0100 251 or fill in the form on the top right of this page to find out why we are the top rated switch provider.

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