Citizens Advice response to BEIS Call for Evidence on third-party intermediaries in the retail energy market
Third-party intermediaries (TPI) play a central role in how consumers navigate and engage with the retail energy market. Polling conducted by Citizens Advice and Ofgem found that, when looking to switch their energy supplier, 41% of consumers used a price comparison website (PCW), 13% used an energy deal scanning service, 4% used an automated switching service and 4% used a collective switch organised by a third-party.
For many consumers, TPIs can help to simplify a complex market, add value and get a better deal in a sector that has a myriad of suppliers and tariff options. However, compared to engaging directly with a supplier, consumers are not as well protected when using TPIs. Key problems can include:
lack of transparency,
lack of access to redress and
lack of identification of consumers in vulnerable circumstances.
As the call for evidence recognises, while energy suppliers are regulated by Ofgem, TPIs are only subject to general consumer law and a patchwork of voluntary schemes.
Our research report Stuck in the Middle (2020) concluded there was a strong need and consumer demand for direct regulation of energy TPIs, in line with other sectors such as financial services. We found that:
70% of consumers agreed that these services should be regulated
over 75% of consumers wanted access to independent redress when things go wrong with these services.
This response draws on that research alongside insights from consumers via our consumer and local Citizens Advice services, where concerns over TPIs have been raised directly. We have also looked at issues faced by microbusiness consumers in relation to broker services, including in Closing the Protection Gap (2019).
We recognise the role of historically high wholesale prices in widespread supplier failures and the subsequent costs to consumers. But the role of TPIs in directing consumers to risky suppliers with unsustainably low prices must also be considered. TPIs helped many failed suppliers to achieve rapid growth, which some suppliers have highlighted in their filed accounts. BEIS should, therefore, consider whether suppliers that subsequently failed would have been able to achieve such rapid growth without the recommendations of TPIs, and whether market outcomes would have been improved, and consumers better protected, if TPIs were regulated.
Longer-term, we note the emphasis in the recent Net Zero Strategy of harnessing demand-side response (DSR) and consumer flexibility as being a cornerstone of achieving a low-carbon power system. Major industry reforms such as Faster Switching, Half-Hourly Settlement and Midata will also lead to either an increased role or complexity for TPIs. When these services reach widespread uptake among domestic consumers, direct regulation will be essential to generate the required level of consumer confidence to unlock the benefits of flexibility and ensure TPIs are not a barrier to the benefits of major industry reform programmes.