More than eight million households are caught in a £1.2billion a year energy bill rip-off, figures show.
The biggest energy suppliers have launched a raft of cheap deals in recent weeks to entice new customers, but have failed to cut bills for existing ones.
It means loyal customers are now paying as much as £270 a year more for power than new customers with the same company.
Research compiled for Money Mail reveals the extent to which these customers are being ripped off by staying loyal to their supplier of gas and electricity.
More than eight million customers have a standard variable tariff with the six biggest firms: British Gas, EDF Energy, Eon, Npower, Scottish Power and SSE. This is the default tariff customers end up on when their fixed deal ends, and is typically the most expensive.
The biggest energy suppliers have launched a raft of cheap deals in recent weeks to entice new customers, but have failed to cut bills for existing ones
Experts say this is because suppliers know that millions of households do not regularly switch deals and so can get away with charging these customers more.
They can then use the money to launch cheap deals that will attract new customers.
Switching organisation The Big Deal calculates that the eight million customers on standard variable tariffs with the big six suppliers are paying a total of £1.2billion a year more than they would if they were on deals for new customers.
On September 6, EDF Energy launched a cheap dual-fuel deal costing the average household £890 a year. By comparison, loyal customers on its standard tariff paying by monthly direct debit pay £1,160 a year – some £270 more. There are currently 795,247 households on EDF Energy’s default tariff, which means that together they are overpaying by around £215million a year.
Scottish Power launched a one-year fixed deal on September 1 costing £990. This is £177 less than its standard tariff costs, at £1,167 a year. It means the 640,698 customers on this tariff are overpaying by a more than £113million a year, according to figures from The Big Deal.
Experts say this is because suppliers know that millions of households do not regularly switch deals and so can get away with charging these customers more
Scottish Power said customers can switch to another of its deals at any time without incurring a penalty.
Npower’s cheapest deal costs £948 a year, while customers on its standard tariff pay £239 more a year, at £1,187. In total these 795,726 customers are overpaying by more than £190million.
SSE has just withdrawn its cheapest deal, costing £891 a year. But as customers signed up it continued to charge the 1.5million households on its standard deal £1,129 a year – some £238 more each and together more than £350million.
The difference between British Gas’s cheapest deal and its standard tariff is smaller at £18. But with 3.1million customers on its default tariff it is still making more than £54million a year extra from them.
Will Hodson, of The Big Deal, said: ‘The difference between these deals is shocking. If the Big Six can offer deals £270 cheaper than their standard tariffs, they can surely afford to cut bills for millions of people.
‘Suppliers should be prevented from offering deals with such a large difference in prices. Otherwise, the Big Six will continue to exploit their most trusting customers in order to attract a few new ones.’
Customers on standard variable tariffs are also vulnerable to price increases. On Friday, British Gas raised its prices for customers on its standard dual fuel tariffs by an average of £76 per person per year.
The rest of the Big Six suppliers raised prices for customers on standard tariffs earlier this year.
In its general election manifesto, the Conservative Party pledged to protect around 17million families on standard variable tariffs, but plans have since been watered down, with only two million vulnerable households set to benefit.
A spokesman for Energy UK, the trade body for power companies, said: ‘How energy suppliers price their products is a matter for individual companies, and it’s in their interest to keep prices competitive to attract and retain customers.
‘The number of customers on standard variable tariffs continues to fall as the energy industry seeks to encourage switching. With over 50 active suppliers in the energy market there has never been more choice for consumers.’
A spokesman for energy watchdog Ofgem said: ‘We’re determined to put an end to the “two tier market” which benefits those who shop around, but leaves many loyal customers overpaying.’
Smart meters project ‘is way behind target’
Installing smart meters into millions of homes is massively behind schedule, researchers say.
It had been hoped to have them in 53million homes and businesses by 2020. But meeting that target would now require that 40,000 are put in every day.
The technology has generated ‘confusion and resistance’ in many households, according to Benjamin Sovacool, professor of energy policy at Sussex University.
‘This is the largest government information technology project in history,’ he added.
‘It means installing 104million pieces of new equipment when counting separate electricity and gas meters, display monitors and wireless networks. There is little awareness of the benefits or of how the technology works.’
The professor also told the Sunday Times the costs were high at £200-£300 a home and the energy savings were tiny. It is estimated that the programme will cost some £11billion overall – a price added to household bills.
The meters transmit details of a family’s energy use to suppliers, using a system similar to mobile phones and removing the need for estimated bills.
The idea is to encourage householders to use less energy.
A Government spokesman told the newspaper: ‘Smart meters will end estimated billing, provide real-time information about energy use and help cut bills.
‘There are 7.7million meters installed and 80 per cent of people recommend them.
‘They are a vital upgrade to our energy system and will cut bills by £300million in 2020.’