What is Automatic switching?

Loyalty Penalty

The reason for the government announcement is that it wants to put an end to energy suppliers penalising loyal customers. Often those customers who prove their loyalty by not switching to a competitor are penalised by being put onto the worst tariffs when their current one ends.

"We do not believe that energy companies should be able to roll over contracts indefinitely or punish long standing, loyal customers. That's why we're going to make it even easier for people to switch to cheaper tariffs and drive down bills so they can keep more money in their back pocket," said a Whitehall spokesperson.

According to recent market data, millions of customers are stuck on their energy suppliers worst standard variable tariffs and are paying far more than they need to be.

The announcement highlighted two areas to put an end to the 'loyalty penalty' by making testing two options.

The first would see consumers being given the option to-

• Opt-in to automatic switching which would see them be offered a simple way of switching to a cheaper tariff (if there is one) when their initial contract ends.
• Opt-out of automatic switching which would see customers be switched automatically to another tariff unless they specify that they do not wish to be.

Also read: How should Energy Suppliers explain Energy Bill Increases?

Criticism of the plans

While many price comparison websites have hailed the idea as a potential 'radical shake-up' of the energy tariff system, there are others urging caution.

"It might detract people from shopping around for a better deal with alternative and more competitive suppliers. If these changes are not implemented properly, they risk lulling people into a false sense of security that they are on the cheapest tariff, despite better offers being available elsewhere," said Peter Earl, head of energy at comparethemarket.com.

Such a system could also potentially become open to abuse from energy suppliers if the rules are not made clear by the energy regulator.

The auto-switching app market could end up being a free for all as energy suppliers seek to snap up the most customers and try to prevent their competitors from gaining an advantage.

Security risks are also a factor as using apps for such a process as energy supplier switching could draw the attention of hackers and cybercriminals seeking sensitive consumer data such as bank details.

The potential for an increase in fake switching apps and other scams will also likely rise, and we could see more people (particularly the elderly or less tech-savvy) falling victim.

Also read: Energy Supply companies most vulnerable to cyber-attack says new report

All part of the plan?

The automatic tariff switching plans are just one part of the governments broader 'green' energy shake-up.

It has also been announced that the most vulnerable energy customers will have the Warm Home Discount extended until 2026 to cover an extra 750,000 households. With energy prices likely to rise as a consequence of the drive toward green energy, this number could rise substantially over the coming years.

Other plans hinted at are increased investment in clean energy sources such as wind and solar as well as in clean hydrogen, nuclear and carbon capture technology.

The government is hoping that its 'Green Industrial Revolution' will create over 220,000 new jobs and be a driving force for the country as it seeks to recover from the devastating economic impacts of the lockdowns and Covid-19 pandemic.

More government plans are due to be announced later this week.

Further Reading

Challenger Energy Suppliers should improve their mobile experiences says new report

Smart Meter Installations rebound strongly and held steady during Lockdown 2.0

Ofgem considering Energy Bill hike to help ease pressure on Energy Suppliers

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