Memorandum submitted by Dr Noel Olsen (FP 31)


A case for a 'Fairtrade' tariff


At present many people, particularly many vulnerable elderly and very elderly people, are on legacy energy tariffs and have benefited less from competition. They are paying far more than they need for their energy. Large numbers of vulnerable people do not use the computer or direct debit, and many have been miss-sold energy in the past by unscrupulous traders when Ofgem was consumer inactive and dogmatic about unbridled competition. Others will have heard stories of miss-selling or are simply change (or risk) averse. As a result they remain locked into tariffs which are far higher cost than those available to computer literate people who are prepared to shop about. No MP will be unaware of constituents or even members of their family in this situation.


Such people and particularly the very elderly have been inadequately regulated for by Ofgem whose assumptions until recently seem to have been that all competition is good and that as a regulator they need not concern themselves with protecting vulnerable people.


I feel the committee should consider the advantages of a 'fairtrade' tariff under which everybody could elect to have their energy supplied on a regulated tariff which while it would not be the absolutely cheapest would be monitored by Ofgem and 'fair' to supplier and consumer. All those on legacy tariffs should automatically be transferred to this 'fairtrade' tariff and those who have not switched for more than 2 years should be given an 'opt out' rather than 'opt in' transfer to such a tariff (appropriate safeguards would enable those who stipulate particular issues such as sustainable energy sources). Such a scheme is not much different to the arrangements that Ofwat currently has for water bills.


Ofgem would need to advise whether there should be single 'fairtrade' tariff across the country with the risk of a massive single supplier, or whether each company would be required to provide one. If the latter they would have to determine the maximum tolerated variation in 'fairtrade' tariffs if any.


I believe that such an approach would deal with the massive social injustice where the most vulnerable tend to pay far more for energy than their better informed neighbours. It would also require Ofgem to actively protect vulnerable and passive consumers.


February 2010