Examination of Witness (Questions 220-239)
MR ALLAN
ASHER
20 MAY 2008
Q220 Mr Wright: In theory, I suppose
if we could persuade every single consumer, where possible, to
switch to the cheapest supplier, that would drive down the market
price.
Mr Asher: In theory it would not,
because what would happen is the prices would then be redistributed
as the companies gained their revenue across a wider base but,
nonetheless, a certain amount of switching will discipline prices,
and we wish we could say that it would improve their quality but
Npower, which is by far the worst supplier in terms of customer
service in the last year or so, has seen its market share go up
and E.On, which has been the best improving company in terms of
its conditions, has seen its market share go down.
Q221 Mr Wright: Why would that be?
Is it just marketing strategy?
Mr Asher: It is advertising campaigns,
local strategies and things like that but, by the way, these market
shares move by just tenths of a percent. There is no major change
in power markets. There has been in gas, of course, because over
ten years British Gas have lost 50% of its market.
Q222 Mr Wright: What would be the
maximum saving from the worst to the best in the current market?
Mr Asher: For direct debit dual
fuel, it is a matter of £16 a year. With prepayment meters
it goes up to £150 or so. However, there can be quite substantial
savings if you are able to switch from a bad prepayment deal to
a very good direct debit one, especially if it was an on-line
one. Hundreds of pounds a year could be saved in that way.
Q223 Mr Weir: You mentioned, very
interestingly, that many of those who switched then found themselves
in a worse position because of rising prices. Is that not inevitable
when the companies stage their price rises one after another?
Putting it bluntly, do you think there is a deliberate strategy
by the companies to undermine switching?
Mr Asher: Actually, there are
two elements there. One is the business model that leads them
to act more or less in parallel but there is another phenomenon
as well. Most people actually do not wake up and say, "I
know what. I'm going to go and switch my energy." Most people
switch because they see an attractive ad on television, get a
phone call, or somebody knocks on their door, and sadly, the evidence
there from the University of East Anglia is that around a third
of people who do switch actually switch to a company which charges
them more, because you do not know. When somebody is at the door
and promises you a saving, there is no way that you can actually
tell whether or not you will have saved. The evidence is that
many consumers are worse off, not better off.
Q224 Mr Weir: Does that not make
a mockery of the whole idea of switching?
Mr Asher: It makes a mockery of
those who say we have got a vigorously competitive and healthy
market. We do not.
Q225 Chairman: People could switch
for reasons other than price. There might be service considerations,
environmental, green tariffs, they might be fed up with the supplier
for some reason. There are other reasons for switching apart from
price.
Mr Asher: That is certainly true.
If this were an inquiry about green tariffs, I would have to tell
you that there is a huge amount of fraud there too.
Q226 Mr Oaten: That is a great comfort
because I switched to a green energy supplier last week! I am
really confused on switching, because when we talked to Ofgem
they said it is fantastic, it is the way forward, and £70
a year was the average saving that could be made. You described
it this morning as "meaningless churn" and I am really
confused. Could you give me an estimate as to what you think the
annual saving is? Do you agree with the Ofgem £70 figure
or are you actually saying that they are over-estimating the value
of switching?
Mr Asher: We were talking earlier
about theory and practice. It is one thing for somebody to look
at price levels and say if theoretically somebody went from that
tariff to that tariff, they could save that amount of money, but
what I am saying is that often that is just not what happens because
there are all sorts of barriers, serial price rises and things
like that. Many people do switch and save money, especially if
they are going from a credit account to a dual fuel direct debit
one. A third of customers still buy gas and electricity from different
companies, and in bringing those together there are of course
some savings. It would be wrong for me to be saying switching
is bad. It is a useful thing. All I am saying is that nobody should
see that as an indicator of a perfect market. It is really a marginal
thing as between groups in this way.
Q227 Mr Oaten: Is it possible to
have a note on why eco-switching is possibly a bad thing? I cannot
let that comment go un-noted.
Mr Asher: I will see you separately.
Q228 Roger Berry: How often do you
consider switching?
Mr Asher: I have switched four
times now. Two of them have gone without error and the other two
were, like many consumers face, a source of frustration and delay.
I have not switched necessarily for the purposes of saving money
but so that I could get a different experience of the different
suppliers and because I am a practical person.
Q229 Roger Berry: Four times over
what period of time?
Mr Asher: Over four years, so
once a year I switch.
Q230 Roger Berry: Would your advice
to consumers be to consider switching once a year?
Mr Asher: If you have already
switched, the evidence is that you are not likely to benefit by
more than a few pounds a year. The first switch can be very valuable,
because you are going from being trapped with the incumbent supplier,
and possibly with an in-area supplier of the other fuel, and on
that first switch £70, £80 or even £100 can be
saved, but we are down to that rump of 50% of people who are not
likely to switch. There are abundant surveys in GB and elsewhere
about that.
Q231 Roger Berry: So your advice
is do it once.
Mr Asher: Yes.
Q232 Mr Wright: Finally, you mentioned
the question of somebody standing at the door selling you energy.
Do you think that Ofgem are doing enough to tackle that particular
problem? Surely, when you have a salesperson at the door, or even
at the end of the phone, and they are giving you this message
that they can save you money on your energy costs, it is very
difficult to go against that, but when you get the bill, you find
out it is not as good as you anticipated. Surely there are other
ways of doing it. Do you think that Ofgem are doing enough to
tackle that issue?
Mr Asher: I think a lot more could
and should be done. It is not much more than a year ago that there
were proposals to remove all of these licence conditions entirely.
We have been delighted to say that Ofgem have recently announced
a probe into the marketing behaviour of Npower, who have been
engaged in the most disreputable tactics, pretending not to be
salespeople. Their pricing practices and their behaviour goes
right back to those cowboy days of early liberalisation. We have
written often enough, and we are delighted to see that after writing
with more than 400 specific complaints, Ofgem are now enquiring
into this sector and we look forward to an investigation that
changes this marketing behaviour. From July 1 this year, by the
way, there will be mandatory complaints handling standards applied
to all those companies—only ten years late.
Q233 Mr Wright: What would you suggest
a consumer does to find out whether they are getting value for
money or how to get the cheapest option available?
Mr Asher: For those with access
to the internet, or perhaps with children or friends who can assist,
we would certainly encourage people to use some of the online
services. energywatch, for example, has a service where if you
put in your postcode, we will give you all of the range of prices
and service information, and we will also give you a list of the
online services that will help you switch. Lots of people use
those. In fact, of the 4 million or so incidences of switching
each year, I suspect a lot of these, perhaps like me, are serial
switchers.
Q234 Mr Wright: So energywatch is
the one to go to at the moment?
Mr Asher: At the moment. It is
unclear when we disappear whether that will be done by Ofgem or
the new NCC but we are quite happy to see that both of those groups
realise that this is a vital market confidence-building service.
Q235 Mr Wright: Would you also advise
people not to switch on the case of a phone call or a door-to-door
salesman?
Mr Asher: I would never advise
people not to switch. What I would advise them is to ensure that
they get objective information, that they are able to compare
prices, that they have a look at the customer service record of
the company. After all, we do want the market to work well for
all consumers. The best form of consumer protection is vigorous
competition in fair and informed markets. Sadly, we have neither
of those.
Q236 Chairman: I was inclined to
say doorstep sales techniques should be banned, but actually they
are about the only way that companies have of reaching the hard-to-reach
consumers, are they not? In practice, the people you most want
to switch are most likely to be reached by doorstep selling.
Mr Asher: I guess that could be
true for some. There are lots of local council areas now that
are introducing these cold call bans and this has been a subject
of great interest and a super-complaint to the Office of Fair
Trading. At one level, you want people to have access to new goods
and services but at another level you want to ensure that people
are not deceived or subjected to poor practices. It is a tough
one. We want the market to work but we do need to put in place
protections so that the most vulnerable are not exploited.
Q237 Chairman: One last question
from me: smart meters. Just to clarify, their major impact could
well be in the competitiveness of the market because they could
give much more information to consumers about the price of electricity
and gas they are consuming at that time.
Mr Asher: I believe smart metering
would transform the competitiveness of the market. It would transform
it from a sluggish, inefficient market to a very efficient one,
but I think it also has incredible sustainability benefits and
potential benefits for the fuel-poor.
Chairman: The reason I made that point
is that I think the sustainability benefits are well known in
political circles, and talked about. Competitive effects are not
so well discussed, and could be even more important.
Q238 Mr Binley: There has been some
delay and some prevarication in terms of installing smart meters,
as you well know.
Mr Asher: That is right.
Q239 Mr Binley: What can we do more,
other than kicking Malcolm Wicks on a regular basis, to ensure
that it happens? The Government is still not over-happy about
this movement, is it?
Mr Asher: Unfortunately, the UK
decided to make the metering part of the market a separate competitive
market. Nobody else in the world has done that. It was a clever
experiment but one which failed dismally. It is not a competitive
market, and now we are stuck that the suppliers are responsible
for the meters and not the distributors, as in the rest of the
world, where rapid roll-out can happen, and that is a huge block
in this market. Sadly—I have said "sadly" seven
times now; it is terrible—the problems that we face in unwinding
this are fairly deep, but pressure is the thing.
Chairman: Mr Asher, as I explained to
you earlier, I am afraid an unavoidable diary clash means I have
to vacate the chair but I am going to hand over to my colleague,
Roger Berry, who will take the rest of the session. Thank you
very much indeed for the evidence so far. I am sorry about this.
In the absence of the Chairman, Roger Berry
was called to the chair
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