Surprise call from Ed Davey, Energy Minister – on collective switching

Surprise call from Ed Davey, Energy Minister

Surprise call from Ed Davey, Energy Minister

It’s rare (well it never happens actually) a Secretary of State calls me out of the blue, especially in his first week in the job. Yet Ed Davey, the new cabinet minister responsible for energy and climate change, has done just that. 

In a nutshell, it was all about him wanting MSE (and others) to launch a collective switching service.

(Note I’ve bashed this blog out at speed as it’s an important message)

Of course, he knew this was very much an open door. I’d been mulling it over anyway, and we discussed it at the energy summit.  It makes my tweet last week when I heard he’d got the job seem flukily prophetic:

Just heard Ed Davey moving up to Sec State for Energy. He’s VERY pro collective purchasing, expect a big push on that in energy market.

This was bang on.

He tells me the very first conversation he had with his permanent secretary to set out his absolute priority was about collective purchasing.  This has been his big baby for a while. It was when I first met him as consumer minister about a year ago, and he’s been working with Consumer Focus on it.

What does collective switching mean?

The concept, in its generic sense, means a whole bunch of people switching at the same time whether via a credit union, a village group, or even a site like MoneySavingExpert.  

It’s currently done in the Netherlands. Effectively, a group of people act together and an intermediary company sources a deal in an auction, hopefully at a discount – and this repeats each year.

My view on how it’d be best here is slightly different to that – though whether it can be pulled off is an important question. My suspicion is the winning model here would be to allow people to switch once to a trusted intermediary so they know they’re getting a continually competitive price without needing to switch again. (See this Are there too many tariffs? poll for evidence).

As the current bill is typically £1,320 but the cheapest is £1,030, there’s a lot of room for savings. I doubt a system like this could guarantee the ultimate cheapest tariff, because that would take a regularly switching tart, but I think  people would be happy to go for a consistently reasonable deal that pushed the market.

Even if MSE could get 0.5% of our 13.4m unique users a month to do this, it would be a powerful platform to start it. 

Of course it’d need to pay to be doable

This is a decent-sized undertaking and whoever does it, it’d require staff and a team to do it – never mind not wanting to dissuade entrepreneurship.  

My view is that if £15 – £25 a year could be generated per household it should be doable – that’s a back-of-the-envelope sum so could be way out – which is a fraction of the amount the switching sites take per switch (in fact see Cheap Gas & Elec and you’ll see it’s even less than the cashback available).

The barriers to entry

While Consumer Focus has been doing some great work on it and Which? are planning to do something that could be based on something like the Dutch model (the market leader there is iChoosr).  My idea would be slightly different to that.  Therefore whether it’s possible is tricky. 

As I said to the Minister, part of the problem is the government saying "please do this" – yet we need the government or Ofgem to set out the rules.  I want to know that if we organise a switch with Acme Power and its service is bad for a customer, we’re not liable.

So an off-the-peg package of rules, liability and guidelines before this starts, which gives a level playing field to players big and small, would be very welcome.

For example, there should be an ability to cancel, yet should it be at any moment, or only at renewal? Or will cancellation penalties be allowed? A cancellation could affect the contract with the energy provider. These questions would need answering.

He’s certainly onside on this and said it’s his priority to get his department to push this and make it happen at speed. So, full steam ahead?

I’d love your views (below)

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