Gap between cheapest UK energy deals and price cap shrinks to lowest level

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Research from Cornwall Insight’s ‘Domestic tariff report’ highlights the level of savings made by a customer switching to a new energy tariff in the UK has reduced significantly.

In fact, the difference between the ten cheapest tariffs and the current default energy tariff cap for September 2021 stands at just £11/year, compared to £291/year for September 2020. This is the lowest level this gap has fallen to since the introduction of the price cap in January 2019.

Figure 1 compares the default tariff cap and the average of the ten cheapest available tariffs on the market, showing a sharp increase in tariff prices since July.

James Mabey, Analyst at Cornwall Insight, said: “The record-high wholesale prices and the resulting energy crisis has no doubt taken its toll on the energy tariffs available to customers, with domestic tariffs seeing substantial price increases over the summer months.

“For example, the cheapest ten tariffs on the market in April averaged £906/year for a typical dual fuel user, while the equivalent figure stands at £1,127/year as of 27 September, an increase of 24.3%. While the cheapest tariff available on the market has remained above £1,000/year for the last six weeks.

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“This reduction in potential savings for customers has caused the level of customer switching to reduce significantly. In fact, Electralink’s latest switching statistics found that 399,000 customers changed supplier in August 2021, a 24.7% decrease on August 2019 and the lowest figures seen in August since 2016.

“Usually, a rise in the default tariff cap by Ofgem would widen the gap between the cap and the lowest deals making switching more worthwhile. However, with wholesale prices remaining well above typical levels, it is not clear that the savings gap will reopen.

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“This is compounded by the fact that many tariffs have been removed from the market. The drastic reduction in the number of tariffs available, along with a handful of suppliers stopping customer onboarding completely, suggests that the domestic switching landscape will retain a low level of switching until the gap between delivered costs falls below the price cap once more. This will either be when the price cap is amended in April next year or the current highs in the wholesale market abate.”