£4bn loyalty penalty issue 'will take a decade to tackle'

The crackdown on the so-called loyalty penalty – which is estimated to cost UK consumers nearly £4bn a year for not switching providers – will take over a decade to tackle, with many firms dragging their feet in changing their practices.

That is the stark response from Citizens Advice to the latest update issued by the Competition & Markets Authority, which has been investigating the problem since autumn 2018.

The organisation, which filed a super-complaint back in September 2018, has long argued that too many UK consumers are paying way over the odds across the five “essential markets” of mobile, broadband, cash savings, home insurance and mortgages.

Yesterday, the CMA set out the action it has taken so far, including recommendations it has made to Ofcom and the Financial Conduct Authority. It insists that Ofcom has “made progress” in the mobile market due to the launch of its “Fair Deal” action plan, designed to tackle pricing for out-of-contract customers.

In response, Virgin Mobile, Tesco Mobile, O2, Vodafone and EE have pledged to reduce their prices, with most bringing in tariffs similar to SIM-only deals for those whose contracts have expired. However, Three has refused to sign up, sparking accusations that it is forcing customers to pay an extra £32.4m a year.

Ofcom has introduced similar measures for broadband customers but these do not come into play until next month. Meanwhile the FCA is still only in the early stages of its proposals covering, insurance, cash savings and mortgages.

The CMA admitted that “more still needs to be done” but chief executive Andrea Coscelli insisted he was “pleased to see progress has been made in helping to stop people being penalised for their loyalty”.

However, Citizens Advice has slammed the “slowly, slowly catchy monkey” approach, claiming that only £318m a year would be saved by consumers under these measures.

The organisation’s chief executive, Dame Gillian Guy, called on the regulators to step up their efforts – and urgently – adding: “At the current rate of progress, it would take over ten years to completely tackle the loyalty penalty.”

Citizens Advice estimates two-thirds of people in the UK are still paying more than they need to in the five markets. It insists that unless there is better progress by July, when the authority is due to provide another update, it will demand Government intervention.