National Audit Office Press Releases
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Protecting consumers? Removing retail price controls

By being able to switch suppliers, customers have put competitive pressures on telecom, electricity, gas, and postal providers following the removal of pricing controls. Around half of energy and fixed line telecoms customers have switched supplier and 90 per cent of people doing so found it easy. There have been problems, however, particularly for more vulnerable customers, owing to factors such as complex tariffs.

Between 2002 and 2006, Ofcom, Ofgem and Postcomm removed retail price controls in markets that had previously been dominated by a few big suppliers. These controls had been imposed on these suppliers to protect consumers while competition was weak. Ofcom, Ofgem and Postcomm removed the price controls because they considered that growing competition meant that the controls were no longer needed.

The processes used by Ofgem, Ofcom and Postcomm for removing retail price controls were consistent with their statutory duties of protecting consumer interests through the promotion of competition. The conditions for competition have developed in the relevant parts of all three markets, and the regulators have taken action to help consumers take advantage of competition.

However, problems such as complex tariffs and a lack of information mean that some consumers, particularly those classified as vulnerable, are still unable to take full advantage of the competitive market. In addition, the suppliers that in the past had monopolies continue to have a strong position in their original markets (46 per cent of revenue in gas, just under 50 per cent of revenue in electricity, and 48 per cent by volume in telecoms).

There remains a need, therefore, for all three regulators to continue to use their competition and consumer protection powers to ensure that markets still protect the consumer. And, in February 2008, Ofgem announced a probe into the electricity and gas markets using these powers in response to recent concern following price rises.

Tim Burr, head of the National Audit Office, said today:

“The removal of price controls is an important step in the development of competition in these markets, but it is not the end of the story. Ofcom, Ofgem and Postcomm need to be vigilant, and be prepared to use their other powers when necessary, to ensure genuine competition is present and that it is working to serve consumers.
“And there are clear lessons for regulators considering removing price controls in other markets. In particular they must be more diligent in getting all the data they need and ensuring that their decision making is transparent and makes good use of consultation.”

Notes for Editors:

  1. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  2. The Comptroller and Auditor General, Tim Burr, is the head of the National Audit Office which employs some 850 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

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