With the government’s promise to halve inflation this year looking on increasingly shaky ground, chancellor Jeremy Hunt this week unveiled an “action plan” with regulators to help consumers as the cost of living crisis intensifies.
Insisting that businesses from banks to broadband providers and utility companies “must play their part” to curb soaring bills, it is a message that plays well for the cameras. But consumer campaigners believe a more radical approach is needed.
One of the first to sit down with Hunt was Martin Lewis, the consumer champion and founder of the Money Saving Expert advice website, who believes that savings rates should be top of the chancellor’s agenda.
“When you are trying to curb inflation under standard orthodoxy, what you want to do is squeeze borrowers’ disposable income and encourage savers to spend less by giving them better savings rates,” he said.
“We’re doing the painful bit that really hurts and destroys people’s lives, but we’re not doing the bit that’s actually rewarding people, which is upping savings rates commensurately. That seems to be bad politics, if I’m honest, and secondly, it’s just not fair.”
While the average interest rate on a two-year fixed mortgage has risen to 6.37 per cent this week, the average easy access savings account pays just 2.37 per cent, according to Moneyfacts, the data provider.
The gap between the two has been narrowing since the disastrous “mini” Budget last autumn as more banks up their rates, but savers must be prepared to switch products and providers to access the best deals.
At a time when UK households are raiding their savings at a record rate, Hunt has ordered banks and building societies to report back by the end of July on how they are “proactively supporting savers to switch”.
Moneyfacts said challenger banks were offering the best deals with a choice of easy access accounts paying 4 per cent or more, and the best one-year savings bonds nudging 6 per cent.
But while political pressure could drive more rapid change in savings rates, in other consumer facing industries the convoluted process of regulatory consultations is a barrier to more rapid price falls.
Lewis believes that banning mobile and broadband operators from making mid-contract price rises is “the lowest hanging fruit” to pluck in the battle to reduce bills. Telecoms regulator Ofcom launched a review in February after some operators passed on price rises of 17 per cent, but the chancellor’s action plan notes it will not report back until the end of this year.
Applying increases at the point of contract renewal would incentivise consumers to “ditch and switch” to save money, said Lewis.
“We are fighting against many billions of pounds of powerful marketing and deliberate entrenching as companies make it as difficult as possible [to switch] so what we have to do is take as much friction out of the system as possible,” he added.
He highlighted the huge number of out-of-contract mobile phone users who could cut monthly bills from £30 to as little as £5 by moving to a Sim-only deal as “the one area where we currently have true price deflation”.
“You now have the right to get your mobile phone unlocked so you can move to a different network. But why do we lock it in the first place?” he asked.
Lewis welcomed the chancellor’s fresh push on social tariffs, which could save millions of households on low incomes more than £200 a year on broadband and mobile costs, but added: “I haven’t seen proactivity [from telecoms providers] and there are things that we could do to identify those vulnerable customers.”
The energy price cap may be falling, but both Lewis and Centrica chief executive Chris O’Shea have gone further than the chancellor this week, urging Ofgem to scrap standing charges in favour of higher unit rates.
“We think it’s really unfair that many customers have no option but to pay a fixed charge per day for their energy, regardless of how much energy they actually use,” said O’Shea. “The standing charge hits people who are careful about their energy use hardest — and these people are often from low-income households, and prepayment meter customers in particular.”
As mortgage rates rise and more household budgets come unstuck, Lewis and others also argue that funding for free debt advice must increase.
StepChange, one of the UK’s biggest debt charities, has seen a 15 per cent year-on-year increase in the numbers of people seeking its help and expects volumes to keep rising.
Since January 2022 there has been a threefold increase in the number of clients citing the cost of living as their main reason for being in debt.
For the first time in the charity’s 30-year history, utility companies are its largest source of referrals, passing on customers who cannot afford to pay their bills. Yet under the current funding model for free debt advice, energy firms, telcos and water companies are not obliged to contribute to the service, with costs shared by the consumer credit industry and the government.
Roughly one in six StepChange clients are homeowners, but as more roll off fixed-rate mortgage deals the charity expects this proportion to increase.
“Interest rates are not going to be back at 1 per cent in six months’ time,” said Richard Lane, the charity’s director of external affairs, referring to the temporary nature of forbearance measures in the chancellor’s mortgage charter.
Describing the agreement as a “welcome step”, he nevertheless urged mortgage lenders to go further.
“If a customer is coming to you saying ‘I need six months because I’m struggling’, at that point you should be asking about their broader situation and signposting them to free debt advice rather than wait. The sooner people reach out, the more we can do to help.”
Source: Economy - ft.com
