Executive summary
Britain’s domestic energy market is still described as a competitive market. In practice, meaningful price competition has largely disappeared.
Most households buy exactly the same electricity and gas through the same national and regional infrastructure. Suppliers do not generate a unique form of electricity for each customer. Their main role is to purchase energy, bill customers, manage accounts and offer different tariff structures.
The theory was that competition between suppliers would reduce prices, improve customer service and encourage innovation. Instead, the market produced:
- hundreds of confusing tariff combinations;
- large differences between what households paid for the same essential service;
- rewards for consumers who repeatedly searched and switched;
- penalties for people who did not have the time, confidence or digital skills to compare tariffs;
- poorly financed suppliers using risky business models;
- widespread supplier failures when wholesale prices rose; and
- billions of pounds of failure costs ultimately passed back to consumers.
The price cap was introduced because competition had already failed to protect disengaged customers. During the energy crisis, the cap then became the effective national default price for most households.
Competition has therefore not disappeared completely, but it has become increasingly artificial. Suppliers compete around the edges of a heavily regulated price rather than delivering fundamentally different electricity.
Electricity is an essential utility. Access to a fair price should not depend on a consumer spending hours comparing tariffs, predicting wholesale markets and deciding whether to fix.
The objective of energy policy should be to provide every household with a clear, stable and fairly priced standard tariff.
The price cap was an admission that the market was not working
The domestic energy price cap came into force in January 2019.
It was needed because millions of households remained on expensive standard variable tariffs while more active customers repeatedly switched to cheaper introductory deals.
The market therefore divided consumers into two broad groups:
- people who regularly compared and switched tariffs; and
- people who remained with the same supplier and often paid more.
This was not a fair or efficient way to provide an essential service.
The Competition and Markets Authority had already concluded in 2016 that weak consumer engagement allowed suppliers to charge many customers substantially more than would be expected in a properly functioning competitive market. Its reforms were intended to increase switching and improve competition. (GOV.UK)
The eventual introduction of a wider price cap demonstrated that these reforms had not solved the underlying problem.
A genuinely effective competitive market should not require the regulator to calculate the maximum unit rates and standing charges that suppliers may charge millions of households.
The cap exists because market competition alone could not be trusted to protect consumers.
The energy crisis exposed fragile supplier business models
Before the energy crisis, government and regulatory policy encouraged large numbers of new suppliers to enter the market.
The number of suppliers increased rapidly. In 2016, there were already 52 active suppliers, up from 27 only a year earlier. This growth was frequently presented as evidence that competition was improving. (House of Commons Library)
However, the number of companies in a market does not prove that the market is financially sustainable.
Some suppliers offered very low tariffs without holding sufficient capital, purchasing enough energy in advance or protecting themselves properly against changes in wholesale prices. Customer credit balances and money owed to renewable-energy schemes could effectively become part of their working capital.
When wholesale gas and electricity prices increased sharply during 2021, these weaknesses were exposed.
Between July 2021 and May 2022, 29 domestic and non-domestic suppliers failed. Most customers were transferred to larger companies through Ofgem’s Supplier of Last Resort process. (National Audit Office (NAO))
The National Audit Office concluded that Ofgem had allowed financially weak suppliers to enter and remain in the market. It found that Ofgem had prioritised increasing competition without giving enough attention to financial resilience. (National Audit Office (NAO))
This was not healthy competition. It was risk being accumulated elsewhere in the system.
Consumers ultimately paid for supplier failures
Customers of failed suppliers did not lose their electricity or gas supply. Ofgem transferred them to replacement suppliers and protected domestic credit balances through the Supplier of Last Resort safety net. (Ofgem)
That protection was necessary, but it was not free.
Replacement suppliers faced costs from taking on customers whose original supplier had failed. These included purchasing energy at unexpectedly high wholesale prices and honouring customer credit balances.
Those costs were recovered through industry levies that ultimately formed part of household energy bills.
The National Audit Office reported Ofgem’s estimate that supplier failures would cost approximately £2.7 billion, equivalent at that time to roughly £94 per household. The estimate included the cost of transferring customers and unpaid obligations to renewable-energy schemes. (National Audit Office (NAO))
Consumers therefore experienced the worst of both systems:
- when competition appeared to work, active switchers received temporary cheap deals;
- when suppliers failed, the costs were socialised across everyone’s bills.
Private suppliers were allowed to compete for customers, but the public and the remaining industry carried the consequences when their business models collapsed.
Ofgem has since introduced stronger financial-resilience rules and, in 2025, confirmed further reforms intended to recover more failure costs from failed companies rather than consumers. These reforms are welcome, but they also confirm that the earlier market structure exposed households to inappropriate risks. (Ofgem)
The price cap has become the market
The price cap was originally presented as a safeguard for people on default tariffs. It now functions as the central reference price for almost the entire domestic market.
During the energy crisis, cheaper fixed tariffs disappeared because suppliers could not profitably offer them below rapidly rising wholesale prices. The large majority of households—around 29 million—ended up on standard variable tariffs controlled by the cap or the government’s temporary Energy Price Guarantee. (House of Commons Library)
Fixed tariffs have since returned, but the choices generally amount to variations around the expected future price cap:
- remain on the capped variable rate;
- fix slightly above or below an anticipated future cap;
- choose a tracker linked to wholesale prices;
- select an electric-vehicle or time-of-use tariff;
- accept exit fees in return for price certainty; or
- gamble that future cap changes will move in the consumer’s favour.
This is not straightforward competition over a normal consumer product. It asks households to make a financial prediction about wholesale energy markets.
In May 2026, Ofgem reported that only around 22% of the fixed tariffs it monitored were cheaper than the April–June 2026 price cap. The average fixed tariff was above the cap-equivalent annual figure. (Ofgem)
There are therefore still tariff choices, but the price cap remains the anchor around which suppliers construct them.
An essential utility should not require constant comparison
Consumers are expected to consider:
- unit rates;
- standing charges;
- electricity and gas separately;
- regional differences;
- payment methods;
- fixed or variable pricing;
- tariff duration;
- exit fees;
- peak and off-peak periods;
- electric-vehicle rates;
- tracker formulas;
- introductory offers;
- loyalty offers;
- smart-meter requirements; and
- predictions about future price-cap movements.
A household can make a perfectly reasonable decision and still pay more simply because wholesale prices subsequently move in an unexpected direction.
That is not meaningful consumer empowerment. It is the transfer of market risk and decision-making onto individual households.
Ofgem’s own consumer research has found that some people regard the energy market as complex and difficult to understand and believe that switching takes significant time and effort. (Ofgem)
Ofgem also states that healthy competition requires consumers to have clear and understandable information, be able to switch easily and see tangible differences between the tariffs being offered. (Ofgem)
Those conditions are not consistently present.
For many households, the differences between tariffs are too small, temporary or complicated to justify the work required to evaluate them properly.
Competition rewards the most engaged, not necessarily those most in need
A competitive tariff market assumes that consumers have:
- regular internet access;
- the confidence to use comparison services;
- enough time to research different products;
- access to accurate consumption data;
- an understanding of kilowatt-hours and standing charges;
- the ability to judge financial risk; and
- the confidence to switch providers or challenge billing errors.
People who possess these skills are more likely to obtain better rates.
Those who are elderly, digitally excluded, time-poor, disabled, financially stressed or unfamiliar with the energy market are more likely to remain on default arrangements.
The price paid for an essential utility should not depend on a consumer’s ability to behave like an energy trader.
Two neighbouring households can consume electricity delivered through the same cables at the same time, yet pay different rates because one household happened to secure a particular tariff several months earlier.
That may be normal in markets for holidays, mobile phones or entertainment subscriptions. It is much harder to justify for electricity needed for heating, cooking, lighting and participation in modern life.
Regional pricing makes the system even less transparent
Electricity price-cap rates vary between regions because network costs and other factors differ across Great Britain.
Consumers can therefore pay different standing charges and unit rates depending on where they live, even when they use the same supplier and nominal tariff.
A household cannot change its electricity distribution region. It cannot switch to a different set of local cables in the way it can switch broadband or mobile networks.
This means that part of the advertised “competitive” retail price is determined by infrastructure over which neither the customer nor the supplier has meaningful control.
Regional differences make tariff comparisons harder and undermine the principle that households should receive a clear national price for an essential service.
The country increasingly relies on energy moving between regions. Renewable electricity generated in Scotland, offshore or in rural areas can help supply homes and businesses hundreds of miles away.
The major infrastructure needed to operate that national system should be treated transparently as regulated national and regional infrastructure—not hidden inside a confusing collection of retail tariffs.
What suppliers should compete on
Removing artificial competition over the basic standard price does not require eliminating energy suppliers or preventing innovation.
Suppliers could still compete over services that genuinely differ, including:
- customer service;
- accurate and accessible billing;
- smart-home technology;
- heat-pump optimisation;
- electric-vehicle charging;
- demand-management services;
- export payments for home generation;
- home energy-efficiency services;
- renewable-generation investment; and
- optional advanced time-of-use products.
However, the basic tariff used by ordinary households should be simple, regulated and consistent.
Competition should create additional value. It should not determine whether a household pays a fair price for essential electricity.
The proposed alternative: one clear national standard tariff
Under the proposed domestic energy tariff reform, every household would have access to the same core tariff structure.
The tariff would include:
- a nationally defined standard peak unit rate;
- a clearly defined off-peak rate;
- a regulated monthly network connection subscription;
- transparent consumption tiers;
- protections for households with medical or exceptional energy requirements; and
- regular public reviews of costs and supplier margins.
Suppliers would receive a transparent and regulated margin for supplying customers.
They would no longer need to attract customers using dozens of marginally different tariffs whose real value depends on future wholesale-price movements.
The policy would separate the essential function of supplying electricity from optional services and innovations.
Every household would know the standard rate. People could compare their consumption and reduce their bills without first having to decode the retail energy market.
This is not about abolishing all choice
Some households benefit from specialist tariffs.
An electric-vehicle owner may choose a tariff with a very low overnight rate. A household with a battery may accept more variable prices in return for access to cheap or negatively priced periods. A consumer may prefer an optional tracker tariff and willingly accept its risks.
These products can remain available, provided that:
- the standard national tariff is always available;
- the risks are explained clearly;
- customers can compare the product against the standard tariff;
- suppliers cannot move customers onto complex products without informed consent; and
- specialist tariffs do not transfer unreasonable costs to other households.
The difference is that no household would be required to navigate these choices simply to avoid being overcharged.
Conclusion
The domestic energy market has spent years attempting to create competition over an essentially identical product delivered through shared infrastructure.
The result has been tariff complexity, unequal prices, consumer confusion, fragile suppliers and billions of pounds in failure costs.
The price cap was introduced because competition did not protect disengaged consumers. During the energy crisis, the cap became the effective market price for almost every household.
Competition has not vanished entirely, but price competition over the basic domestic supply of energy is now largely an illusion.
The question is no longer whether Britain can recreate the tariff market that existed before 2021.
The question is whether that market was ever a fair or sustainable way to provide an essential utility.
A household should not have to monitor wholesale markets, repeatedly visit comparison websites or gamble on a fixed contract to obtain a fair electricity price.
The standard price should be fair by design.
Suppliers should compete by providing better service, useful technology and genuine innovation—not by relying on confusion, consumer inertia or differences in the date on which someone happened to sign a contract.
References
- Competition and Markets Authority, Energy Market Investigation: Final Report, June 2016.
- National Audit Office, The Energy Supplier Market, June 2022.
- National Audit Office, Investigation into Bulb Energy, March 2023.
- Ofgem, What Happens if Your Energy Supplier Goes Bust?
- Ofgem, State of the Energy Market Report: Retail, April 2025.
- Ofgem, Consumer Impacts of Market Conditions Survey: Wave 6, July 2025.
- Ofgem, Behavioural Research on Consumers’ Energy Tariff Choices, 2025.
- Ofgem, Retail Market Indicators, accessed July 2026.
- House of Commons Library, Domestic Energy Prices, June 2025.
- House of Commons Library, Introduction to the Domestic Energy Market, October 2025.