Would capping energy prices help people with mental health problems to get a better deal?

A few weeks ago the Prime Minister announced her intention to cap energy prices if re-elected in June. Few would argue that Britain’s energy market is working well, and all main parties have proposals for interventions to help customers get a better deal. Across the UK, consumers are paying £1.4 billion more a year than they need to for energy, and a price cap is already in place for customers with pre-payment meters.

This is an important issue for people with mental health problems, who are about four times as likely to be in arrears with their gas and electricity bills than those without. But would a price cap solve the problem?

At present, different customers pay very different prices for energy – even though gas and electricity is exactly the same, wherever you are. The rate you pay largely depends on how regularly you switch suppliers. Two-thirds of customers are on the most expensive deals, a Standard Variable Tariff, and paying up to £260 a year too much. By contrast, the relatively small proportion of consumers who regularly shop around and switch energy providers pay much lower fixed price tariffs.

There is an issue of fairness here. Shopping around and switching are simply more difficult for some consumers – often for reasons that aren’t their fault. Our research shows that some mental health problems can make comparing different options and processing complex information much more difficult. This can make shopping around for energy tariffs, which often have different rates at different times of day, standing charges you pay regardless of the energy you use and different rates for different payment methods, almost impossible. The psychological impacts of mental health problems can also have an enormous impact on your ability to get a good deal – quite simply, if getting out of bed is a struggle, the idea of switching energy providers is unlikely to be a priority.

A price cap could have some immediate value in protecting consumers who are currently paying seriously over the odds and might not be able to get a better deal for themselves. Analysis suggests it could save some households up to £100 a year. But, even with a cap, we would still be in a situation where some people are paying substantially more for an identical good than other people – and often for reasons beyond the individual’s control. Failure to shop around in the energy market isn’t just laziness or naivety – often it’s just an unrealistic expectation.

For pre-payment energy meters, the Competition and Markets Authority (CMA) decided that although a price cap was justified, it should only be a temporary measure. By 2020, the CMA hopes that smart meters in every home will mean it is easier for consumers to switch and that the price cap is no longer needed.

A similar logic could be applied across the market. The energy market isn’t working, with the majority of consumers paying above the odds and people in the most difficult circumstances, including people experiencing mental health problems, often paying the most. But the market doesn’t have to work this way.

Technology is changing the way we interact with the energy markets, with price comparison websites making searching for the best value much easier. With smart meters, it should become possible to automate that search – no need to type in your meter readings or scroll through pages of different offers. If we can make switching as simple as clicking a button, we could enable all consumers to benefit from a more competitive energy market. This isn’t a utopian ideal – the basic technology needed to do this already exists. It will take time to roll out, but that’s no reason not to plan ambitiously. In energy – as in financial services – we should always be looking for new ways to make markets work for people, not just providers.