Financial expert Martin Lewis has warned that a proposed Ofgem measure to protect energy suppliers could act as a "form of switching penalty" for UK households already facing higher bills.
The warning comes as Britain's energy watchdog Ofgem launched a consultation on plans to reintroduce its market stabilisation charge, designed to prevent suppliers from collapsing when wholesale energy prices fall sharply during volatile market conditions. The move follows continued impact on wholesale markets from the war in the Middle East.
How the charge would work
Suppliers can be left vulnerable when they have bought energy in advance at a high price and could suffer financial losses if prices later tumble sharply and high numbers of customers switch to other firms seeking cheaper deals. The charge ensures the supplier gaining a customer through switching pays compensation to the provider that lost the customer.
The measure was previously in place from April 2022 to March 2024, following Russia's invasion of Ukraine, which sent energy markets reeling. Ofgem stressed that reactivating the scheme would not automatically create charges or push up customer bills, with payments between suppliers only triggered if wholesale prices fell sharply enough.
Lewis's warning
Martin Lewis, founder of MoneySavingExpert.com, said: "In a nutshell, it means if wholesale energy prices drop sharply, the cheap fixes and switchers' deals offered will be a lot more expensive, in order to protect energy firms' profits."
He added: "That's because any firm taking on a new customer, including on a cheap fix or other specialist tariff, will have to pay compensation to that customer's old supplier, if they switch. It's basically a form of switching penalty."
Households have already been hit with a 4 per cent hike to Ofgem's energy price cap from October 1, with forecasters warning power bills could soar by almost another £300 from January.
Ofgem's response
Neil Kenward, interim director general of markets, said: "We're preparing for what is likely to be a difficult winter for many households." He noted that while the energy market is stronger than during the energy crisis, volatility remains and the charge helps protect consumers from that volatility.
He added: "In volatile market conditions, it's important that suppliers can continue to secure the energy their customers need without taking unsustainable risks. By acting now, we can help maintain a stable and resilient energy market and protect consumers from the costs and disruption that can arise when markets become unstable."
Mr Lewis responded: "This is a 'market stabilisation charge' but the supplier market is pretty stable, and I doubt we are at the domino risk of suppliers going bust in the way they did in the early 2020s. A good few energy firms have made large profits since then, and protecting them over winter by effectively dampening competition because it's 'not their fault' feels raw."
