To stop bloated utility bills we need to be able to shop around

Hardly a day goes by without some sort of complaint against utility companies being aired in the press. Everyone agrees that the problem is endemic; too many people feel ripped off when their energy or water bills arrive, and people who are happy with their bank are rarer than snow in summer.

The worst thing perhaps is that there’s a sense of inevitability about it. People know they’re being taken for a ride but they feel they can’t do anything about it. If we’re not happy with our local supermarket we can switch to a different chain, but if it’s a water firm we can’t. And even where it’s possible to switch, for example by choosing a different bank or gas company, very few of us do because switching is tricky, slow and we’re worried about being left in the lurch if something goes wrong halfway through. Worse still, when people eventually get frustrated enough to think about switching, they’re often discouraged because you’d need a PhD to pick the best deal out of all those competing tariffs and suppliers.

In theory, the big regulators like Ofgem, Ofwat and Ofcom are there to look after us and protect us against being ripped off. The problem is that they have to second-guess what we, the customers, want. And that’s fundamentally impossible; no matter how clever and hard-working they are, they’ll always be a bit like that well-meaning uncle who gives you the wrong present at Christmas.

The cost of such an inefficient system is enormous. Not only is it particularly hard on pensioners and less well-off families, the impact of high prices for power, water or transport on Britain’s businesses is truly awful too. It pushes up their costs, puts jobs at risk and slows down economic growth as well. Economists say we’d grow by an extra 15% over the next ten years if utility firms offered better value for money.

So what’s the answer? Well, we should stop trying to fix a system that’s never going to work and, instead, borrow an approach that works well in other industries. If we give you and I as consumers more freedom to shop around, either by increasing competition where there isn’t any (as in the water sector) or by making sure that people can vote with their feet and switch when they’re not happy, the utility firms will have to work a lot harder to hang on to their customers. And that will mean they have to offer better deals, and improved customer service too. In Scotland for example, where the water sector has already introduced a lot of these reforms, there have been huge benefits for consumers.