UK SMEs Wasting Nearly £2 billion on Inflated Electricity Rates

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Prices vary by as much as 220%, depending on contract status -- SMEs each save on average £1,121 annually by shopping around, but barely 7% of firms switched electricity supplier in 2010 -- SMEs trapped into excessive charges by unclear contract renewal windows

It is alarming that SMEs can pay such a vast variety of prices for what is essentially the very same product.

UK SMEs wasting nearly £2 billion on inflated electricity rates

  •     Prices vary by as much as 220%, depending on contract status
  •     SMEs each save on average £1,121 annually by shopping around, but barely 7% of firms switched electricity supplier in 2010
  •     SMEs trapped into excessive charges by unclear contract renewal windows

Close to £2 billion1 is being lost from the UK’s small business sector each year by firms unnecessarily paying inflated electricity prices, research reveals today.

The study, by business saving advisors Make It Cheaper, shows that firms can pay more than 220% over the lowest business electricity rates on account of their contract status.

Despite each small firm saving on average £1,121 annually by shopping around for the best deal on their electricity bill, barely 7% of businesses switched electricity provider last year, according to the research.

The study also warns that small firms are being trapped into high charges by a confusing contract renewal system, in which businesses have just a small window of opportunity to change suppliers before being automatically rolled onto a new contract, at a significantly higher rate.

Jonathan Elliott, Managing Director of Make It Cheaper, comments:

“Through a lack of awareness of electricity rates, and a failure to shop around for the best deal, small businesses are being hit with a lethal combination that is having a de-energising effect on the entire sector.

“It is alarming that SMEs can pay such a vast variety of prices for what is essentially the very same product.

“This collectively represents a huge amount of lost capital, that would be far better invested in growth in this stagnant economic climate for small businesses.”

The study is based on analyses of business electricity market rates, Make It Cheaper’s customer savings data (based on 40,000 transactions) and independent research among 500 small business owners across the UK.

Killer Watts

The lowest business rates for electricity currently stand at just over seven pence per unit, but SMEs can pay more than twice this price, the Make It Cheaper research reveals.

Small firms are charged considerably higher ‘renewal rates’ when annual contracts are allowed to roll over, but the highest prices are reserved for passive organisations that avoid entering any form of contract, and are placed on inflated ‘out of contract rates’.

Despite these findings, barely 15% of small businesses know what rate they are paying for electricity, according to the study.

The latest rates at time of publication are below:

                             New Customers     Renewal        Out-of-Contract
Business Electric         7.2p/kWh             10p/kWh             16p/kWh

Can Switch, Won’t Switch

The average amount small businesses are able to reduce their electricity bill by switching suppliers is £1,121 per year: a 32% saving on the average annual spend of £3,4592.

However, the average saving that SME owners think they can make by switching electricity supplier is just 9.5%, and they say they would need to achieve a minimum 13% discount to persuade them to switch.

As such, only 7% of businesses switched electricity in 2010, compared to an annual switching rate among households of 18%, according to the latest figures from Ofgem3.

Indeed over half (54%) of businesses have never switched electricity supplier, and a significant minority (18%) are completely unaware that they are able to do so.

Rollover Trap

One of the reasons, revealed by the Make It Cheaper research, for the high proportion of small businesses paying higher rates for their electricity is the narrow window of opportunity firms have to switch suppliers.

Jonathan Elliot explains: “Unlike domestic energy users, who can change supplier at any time, SMEs have a fixed period before their contract expires in which they are able to switch before being automatically rolled over onto a new contract at a higher rate.

“The length of this period, and when it falls, varies dramatically between suppliers, and is often easily missed by busy entrepreneurs. Suppliers are obliged to send a renewal letter detailing the renewal rate, the contract end date, and when customers must give notice if they wish to switch supplier, which can be as much as 90 days ahead of the contract close.”

Yet alarmingly, the vast majority (79%) of business owners do not recall ever receiving a renewal letter from their supplier, according to the study, despite Ofgem’s efforts to raise awareness of its importance4.

Make It Cheaper has created a free online tracking tool for small firms to check when their ‘switching window’ arises, as well as an automated notice letter generator.

ends

For further information
For more information or an interview with Jonathan Elliott, please contact Martin McGourty or Alexandra Kent at Man Bites Dog.

T: 0844 561 1416
E: martin/alex(at)manbitesdog(dot)biz

Notes / About the Study

1 Figure based on the average saving achieved per small business (note 2 below), extrapolated across the estimated total number of meter points in SME premises across the UK (based on Make It Cheaper market knowledge), removing first the 7% of firms that did switch energy supplier in 2010. Exact figure is £1.88 billion.

2 Figure based on Make It Cheaper’s average savings made per customer data, based on 40,000 supplier switching transactions in 2010.

3 Link to relevent Ofgem report here: http://www.ofgem.gov.uk/Sustainability/SocAction/Publications/Documents1/Ipsos-MORI%20switchingsurvey2009.pdf

4 Link to relevent Ofgem report here:
http://www.ofgem.gov.uk/Markets/RetMkts/ensuppro/Documents1/Amendment%20to%20Energy%20Supply%20Probe%20proposals%20relating%20to%20automatic%20contract%20rollovers%20for%20micro%20business%20consumers.pdf
All remaining data is drawn from independent market research among 500 owners of SMEs across the UK.

About Make It Cheaper

Established in 2007, Make It Cheaper is the number one destination for businesses to get a better deal on their utilities and business services. Based in Central London, Make It Cheaper receives more enquiries and arranges more new contracts than any other business price comparison service. These include the business customers of most of the major domestic price comparison services with whom Make It Cheaper has partnerships, as well as business membership organisations, charities and trade associations. Acting on behalf of all these customers with total impartiality and free of charge, Make It Cheaper offers year-on-year savings across a range of products including business electricity, business gas, insurance and telecoms. Using its expertise and scale in the SME market, Make It Cheaper will typically save its customers over 30% of costs as well as a considerable amount of time that they can then spend on running their businesses.
Make It Cheaper was recently a finalist for ‘SME of the Year’ at the National Business Awards, ‘Young Company of the Year’ at the CBI’s Growing Business Awards and ‘B2B Customer Service Team’ at the National Customer Service Awards.

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David Mercer

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