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Citizens Advice - One-in-seven customers still paying the loyalty penalty despite cost-of-living crisis

  • Citizens Advice says ‘no more excuses, no more delays’ after regulators found £1.3bn a year loyalty penalty for broadband, mobile and mortgages  

  • Tackling the loyalty penalty could be worth over twice as much as October’s £400 energy grant or more than half the energy price cap

One-in-seven customers are still paying the loyalty penalty across the broadband, mobile and mortgages markets in the midst of a cost-of-living crisis, Citizens Advice has uncovered.

The charity found two fifths of people (41%) who are paying the loyalty penalty have struggled to sleep due to their finances. Three in 10 (28%) have already cut back on everyday essentials such as food and energy, and 65% are worried about keeping up with their bills.

Analysis of 165,000 budgets of people who came to Citizens Advice for debt help, found those with the lowest incomes spend almost double the proportion of their income on telecoms than the highest earners.

Now, Citizens Advice is calling on the regulators to finally tackle the loyalty penalty across the broadband, mobile and mortgages markets. It says no-one should be punished for being loyal in the midst of a cost-of-living crisis. 

‘I’ve turned off my gas, I buy yellow-sticker food - but I’ve paid a £3,000 loyalty penalty’

Tracy, who is originally from the US, signed up to a £30-a-month package which included TV, landline, broadband and international calls in 2006. She relies on disability benefits. 

In January this year she began working through her bills to see where she could save and was shocked to see her bill had increased to £80 over the years. She has now switched providers.

She said: “Everything is going up; gas, electric, food and I have a mortgage to pay. I shop late in the evenings to get yellow-sticker discounted food, I turned off my gas as I can't afford to repair the boiler or use the heating and I don’t go anywhere other than my hospital appointments. 

“When I asked my broadband provider why I wasn’t told about the increases, they said I should have checked my payments and contacted them to see if there was a cheaper deal.

“I need to be able to speak with my family as I can not afford to visit them, but new customers pay £50 less than me for the same deal.  I have paid nearly £3,000 more for being a loyal customer. How on earth can they justify me paying so much more - especially as I was with them for 16 years.”

The loyalty penalty: Four years since the Super Complaint 

In September 2018, Citizens Advice submitted a super complaint on the loyalty penalty, in the mobile, broadband, home insurance, mortgages and savings markets. By 2020, the sectors’ regulators had found a combined loyalty penalty of £3.4 billion every year. 

In January this year, the Financial Conduct Authority (FCA) essentially abolished the loyalty penalty for car and home insurance, by banning price walking - gradual year-on-year price increases - and making companies automatically switch their customers to better deals. It has paused investigating the cash savings market.

But Citizens Advice is concerned that little meaningful action has been taken in the three other markets it previously identified as having a problem. Regulators found annual loyalty penalties of £800 million for mortgage holders, £451 million for broadband customers, and £83 million for mobile customers paying a bundled contract including a handset. 

The charity warns consumers are paying a high price for this inaction, in the midst of a cost-of-living crisis:

Market

Loyalty penalty cost per person per year 

Action taken since 2018

UK adults paying the loyalty penalty during the cost-of-living crisis

Mortgages

£1,000

⬤ FCA - no action

630,000

Mobile

£83

⬤ Ofcom - some voluntary commitments from firms

1.5 million 

Broadband

£61

⬤ Ofcom - some voluntary commitments from firms

7 million

  1. See point 6 of Notes to Editors for sources and further detail on voluntary commitments

If a customer pays the loyalty penalty across all three markets this could cost £1,144 a year, equivalent to more than half of the current energy price cap. The £95 monthly cost of the loyalty penalty is equivalent to 17 days average energy use. 

But of those paying the loyalty penalty, 18% said it’s too difficult or time consuming to switch, and a quarter of a million (3%) didn’t even know they could.

‘Mobiles and broadband are a lifeline and so people don’t rock the boat’

Mike Emmett runs training for advisers at Citizens Advice Cardiff & Vale to help people reduce their outgoings as part of a manageable budget. 

He said: “Many people see their mobile and broadband as a lifeline. They need them to speak to people and do things like manage their Universal Credit account, and help their kids with their homework.

“But they’re usually reluctant to switch for fear of rocking the boat, particularly because of the prospect of credit checks. We also find people who are digitally excluded or who have mental health problems often prefer to speak to someone about switching, but they can wait for hours on the phone and end up giving up

“It’s so frustrating when we see people who are on the lowest incomes paying the loyalty penalty, as they’re forced to jump through so many hoops to try and sort it.”

Dame Clare Moriarty, Chief Executive of Citizens Advice, said:

“The government did the right thing by strengthening its cost-of-living help, but finally fixing the loyalty penalty could put more than twice as much money back in some people’s pockets as the £400 October energy grant.

“As we all pull together to weather the cost-of-living crisis, it’s incredibly frustrating to see there are still firms out there that prefer to help themselves than help the people who’re most in need. 

“The time for piecemeal pledges has passed. Regulators must tackle the loyalty penalty across these three markets - no more excuses, no more delays.” 

Notes to editors

  1. The loyalty penalty is the difference between what loyal and new consumers pay for the same service.

  2. Opinium carried out a nationally representative survey of 3,087 UK adults with a mobile, broadband, or mortgage contract between 15 and 23 June 2022. 

  3. The FCA began consulting on the cash savings loyalty penalty, but paused this work due to the pandemic and low interest rates. Citizens Advice expects this to restart as interest rates rise.

  4. Energy use based on current price cap of £1,971, where average day would cost £5.40.

  5. 165,779 people who came to Citizens Advice for help with debt completed a Budget Planner between January 2019 and March 2022 and reported their telecoms costs (including mobile, broadband, landline and TV costs). The Budget Planner is a detailed examination of the finances of someone in debt which considers their income, expenditure and any existing debts they hold. The medians are calculated based on people who have both mobile phone and broadband costs recorded.
    Those with an income of less than £400 per month spent £30 on average, equivalent to 8% of total expenditure. Those who have an income of over £3,200 per month spent an average of £132 equivalent to 4.1% of total expenditure. 

  6. Loyalty penalty table 

    1. In 2019 the FCA research into mortgage switching found those who don’t switch pay on average £1,000 extra each year.

    2. In 2021, Ofcom estimated mobile customers could save £83 a year by switching, and broadband customers £61. 

    3. All firms send end-of-contract notifications, and a breakdown of airtime and handset costs for mobile. Once the handset has been paid off, most firms stop charging for the handset, but some don’t. For customers on bundled contracts who’ve been out of contract for three months, EE gives a 10% discount. Vodafone offers a £5 monthly discount for contracts over £11 taken out before June 2021. Customers that took out bundled contracts after June 2021 are charged separately for airtime and handsets and will no longer pay the loyalty penalty. Three does not give a discount.

    4. For broadband, providers agreed to reduce bills for out-of-contract customers in vulnerable situations.

    5. Citizens Advice estimate of UK adults paying the loyalty penalty during the cost of living

  7. Citizens Advice is made up of the national charity Citizens Advice; the network of independent local Citizens Advice charities across England and Wales; the Citizens Advice consumer service; and the Witness Service.

  8. Our network of charities offers impartial advice online, over the phone, and in person, for free. 

  9. We helped 2.4 million people face to face, over the phone, by email and webchat in 2020-21. And we had 40 million visits to our website. For full service statistics see our monthly publication Advice trends.

  10. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 2,600 service outlets across England and Wales.

  11. Citizens Advice is the largest provider of free, multi-channel debt advice. Providing that help gives Citizens Advice unique insight into the types of debts people struggle with.

  12. Citizens Advice is the statutory consumer advocate for energy and postal markets. We provide supplier performance information to consumers and policy analysis to decision makers. 

  13. The Citizens Advice Witness Service provides free and independent support for both prosecution and defence witnesses in every criminal court in England and Wales.

  14. Citizens Advice also offers Pension Wise appointments across England and Wales. 

  15. You can get consumer advice from the Citizens Advice consumer service on 0808 223 1133 or 0808 223 1144 for Welsh language speakers.

Original article link: https://www.citizensadvice.org.uk/about-us/about-us1/media/press-releases/one-in-seven-customers-still-paying-the-loyalty-penalty-despite-cost-of-living-crisis/

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