A Postcode Lottery: Regional Electricity Price Variations for Inactive Consumers

The introduction of a price cap for consumers who have not switched to cheaper
deals in the British energy market reflects increasing political concern about the
higher prices paid by these consumers compared with their more active
counterparts. In this paper, we demonstrate the variations in prices paid by
inactive consumers for electricity in different parts of Britain over the last 45
years. The regions identified as the cheapest and most expensive vary
noticeably over the period, while the magnitude of the regional differences are,
if anything, lower since the introduction of competition than they were before
privatisation. We explore the characteristics of consumers who stated that they
had never switched supplier, and who were therefore subject to these regional
price differences, using unique data from a consumer survey in 2011.
Responses to the question ‘have you ever switched supplier’ identified several
characteristics of inactive consumers which were consistent with the findings of
previous studies: not being retired, having lower electricity expenditure, not
having a gas supply and using certain payment methods are associated with a
consumer reporting never having switched. However applying a consistency
test (namely observing whether consumers reported being with their region’s
incumbent supplier) highlighted a number of issues with relying solely on survey
data to identify long-term inactivity.