The viral letter about mis-sold student loans due to retrospective interest hikes is well meaning, but wrong

The papers are full of an angry letter from recent graduate Simon Crowther to his MP, which has been shared over 20,000 times, complaining about retrospective hikes to student loan interest. 

The letter is well meaning and does a good job in raising awareness. It’s been in all the newspapers, and indeed in articles in Huffington Post and The Guardian the letter has been linked to my own letter to the PM about retrospective changes.

However, while I agree with the sentiment – and the fact many students have been outrageously mis-sold loans due to changes – the content of the letter isn’t technically correct, and shows a continued general misunderstanding of how student finance works, that could mislead some.

So not to attack where he’s coming from, but to ensure people understand their own loans, I wanted to bash out a quick blog just explaining the situation (for a beginner’s guide to how loans really work see Student Loans Mythbusting).

The full transcript of his letter seems to have been taken offline before I could get to it, so I’m taking my quotes from the newspaper copy. If there was more in Simon’s letter explaining the bits I’m talking about, apologies to him.

1. There has been no retrospective change to interest rates

The newspapers write: “Crowther said that he took out the loan on the understanding the interest rate would remain at between 0 and 0.5%, but it has since risen to above 3%.”

The only people whose rates are above 3% are those who started university in or after 2012. For them rates are currently 3.9%, likely rising to 4.6% in September. And the rate’s never been below 3% for this cohort of students – nor, to be fair, has it ever been promised to be lower. It was always due to be inflation plus 3%.

In his letter Simon writes

“I feel we have been mis-sold the loan. A commercial firm would not be allowed to buy loans from another company and then hike the interest rates. This is not what I and thousands of others signed up to. How can it be allowed?

“How can our loan agreements be altered without our prior knowledge? This is a disgraceful act by a Government which encouraged us, when at school, to go on to higher education – helped by a Government loan with the promise of a low interest repayment scheme.

“Along with many of my former university colleagues, we have lost our trust in this Government. We have been told that as graduates, we are the future leaders of the country in politics, engineering and commerce.

“I trust when our generation reaches Parliament, our future Government is never so short sighted as to treat their ‘future leaders’ in such an underhand way.”

While I absolutely agree with ‘How can our loan agreements be altered without our prior knowledge?’ as they have (see point 3 below), that change isn’t about interest rates. For 2012 starters they have always been…

– While at university, inflation (RPI) + 3%.
– After leaving, a sliding scale between inflation (RPI) and inflation + 3%, depending on earnings – the highest rate being for those earning over £41,000.

The rate of inflation changes every September based on the prior March’s figure. This has been the case ever since student loans were introduced. The recent change of inflation is just the annual uprate; there’s no retrospective change. This was always due to happen and has happened. Full info on how this works in Should I pay off my student loan?

2. Just to cover the interest I would need to be earning £41,000 a year

In another section of the letter he writes…

“Just to cover the interest, I would need to be earning over *£41,000* a year. Unless I earn that much, my student loan will increase due to the interest.

“I would like to know how many new and recently-qualified graduates are earning over £41,000? I am only 22 years old and out of university less than a year.

“I have actually set up my own business and have been able to employ two people. As I am employing two people my own salary is lower, which means my student loan will be increasing due to the interest.”

This is an interesting point, not because it’s wrong, but because in some ways I think it isn’t a helpful way to think about the practical impacts on your pocket.

In many ways the interest is an irrelevance to all but the very highest-earning students (see my Student loans are interest free for most blog). The fact is you repay 9% of everything above £21,000, and you do that for 30 years. Most people won’t pay it off within that time, so it doesn’t matter what you owe, that changes nothing – it is effectively like paying an additional income tax at that rate.

The interest is a red herring as you’re not even clearing the loan before it wipes, so for most you won’t pay it anyway. Most people’s loan statements are in practice an irrelevance and could just be binned and not worried about – just accept you’ll pay 9% above £21,000 salary for 30 years. The amount ‘owed’ is notional, not real.

I know this is confusing. But the amount left when the debt wipes isn’t an issue for the individual, and shouldn’t scare anyone off university. It’s an issue for the taxpayer who has to fund the gap. If you’re finding this a little confusing, please do read Student Loans Mythbusting where I explain it in detail.

3. The real retrospective change students should get angry about

While there hasn’t been a retrospective change to interest rates, disgracefully and against all natural justice there has to the repayment level, and that is very costly to students. I suspect that’s what generated the passion to make this go viral, but to campaign on it we need to get the facts straight, otherwise we just give the Government an excuse to say “not correct”.

For students who started university in 2012, it was said that the £21,000 level at which you start repaying would rise annually with average earnings from 2017. Last year the Government backtracked on that. So now it’s frozen until at least 2021, when they’ll then review it.

In practice this means students will pay more each year. Here’s an example to explain…

Imagine it’s 2021 and the threshold has increased to £23,000 a year and you earn £24,000 – you’d repay 9% of the £1,000 gap, so £90 a year. Yet as the threshold is frozen at £21,000 you have to repay 9% of the £3,000 gap, so three times as much: £270 a year.

Over the five years it’s frozen this could add up to £1,000s extra for some students. And remember as most students don’t clear within the 30 years before it wipes, there’s no gain from paying more, you don’t clear the debt quicker, it’s just an absolute cost increase.

I’ve hired lawyers to look at challenging this, and will be blogging on that soon, though frankly it doesn’t look good. So the more students and parents that can campaign to their MPs about this hike the better.

Recent student loan blogs:
– Student loan hike: Meeting with Minister to propose mitigation measures

David Cameron snubs my retrospective student loan hike open letter

– Open letter to David Cameron about the retrospective student loan hike

– I’ve hired lawyers to investigate Govt’s retrospective student loan hike

– Help fight the Govt’s student loan U-turn that means many will pay more

The Money and Mental Health Policy Institute – what’ll it really do?

A month ago I announced I was founding the new Money and Mental Health Policy Institute. It has just gained charitable status, and as this is Mental Health Awareness Week, I wanted to explain more about it. The article below is primarily one that was first published in The Telegraph on the launch of the institute.

Debt and mental illness are a marriage made in hell. 1) You’re four to six times more likely to have a debt crisis if you’ve mental health issues; 2) Half those seeking debt help have mental health issues; 3) The treatment time for clinical depression can be 18 months longer for those with financial problems too.

The two feed off each other. Debt crisis can trigger clinical depression, anxiety attacks and more; mental illness can build debts. Breaking the link would help individuals, the NHS and the economy. Yet many who admit to me they’re affected by this union think they’re alone. Actually it’s so common, it’s ordinary.

Mental health is a spectrum. Everything from borderline personality disorder to dementia or just plain grief. All can impact our ability to make decisions. My hope is that within a decade, when someone is getting a credit card and they choose to mention they have, say, bipolar spending sprees, without fuss the bank simply says: “We’ve a number of different control options you may like”.

While I don’t have a clinical condition, like millions across the UK, I’ve had some very dark days. During one of the worst of those, where I struggled to cope with leaving the house – I felt so fortunate that I wasn’t paid by the hour and struggling to make ends meet, and could take a little recovery time. That was the day I promised myself to try to do something for those without that luxury.

This is more than a financial issue

Debt counsellors CAP UK report 17% of their clients have tried to take their own life. When I’ve written about it on social media I’ve been drenched with responses. Here are just a couple…

I have bipolar and was given lots of credit which I spent while on a manic high. I am now in so much debt there’s no way out. Money worries continue to hamper my recovery.

I’ve been in the circle of hell for 20 years. The illness makes dealing with it difficult. Talking to aggressive strangers only interested in being paid becomes too much so you avoid it and the debt doubles with interest or fines. You stop opening post so they knock at the door, so you stop answering the door. Next thing you’re a prisoner in your own home. One period of illness leaves financial scars with you every day.

For practical help if you’re struggling, see my free Mental Health and Debt help booklet.

Helping people when they’re in control, to protect themselves when they’re out of control
Thankfully over the last decade, the financial services sector has improved its attitude and procedures when dealing with people with mental illness once they’re already in the mire.

So what I want the new Money and Mental Health Policy Institute to do is to focus on prevention. Very deliberately this isn’t a ‘help to consumers in trouble’ charity, that would be a sticking plaster. More fundamental change is needed. It’s a bold ambition to influence the way products are designed not just in finance but any sector which leaves people in debt – from mobile phones to energy bills.

Nor is it a think tank – I don’t give a monkey’s about research for research’s sake. The aim is to invent practical solutions and then get practical change. It’ll be run by the brilliant Polly Mackenzie, a former policy chief and No. 10 special adviser, and a team of policy and academic researchers. I’m providing funding for at least the first four years (for transparency’s sake that’s a minimum donation of £2.1m overall).

Unapologetically we’ll start with low hanging fruit to prove our worth – like these two totemic ideas we’ll be researching. They’re based on controls you can put in place to protect yourself from fraud, used to protect yourself from yourself. This should help individuals and lenders too as if it prevents bad debt, they gain.

  • High-control account options. Go abroad and debit and credit card firms freeze your accounts if they detect unusual spending patterns. Why not allow people to voluntarily apply that to all spending?

    Then if unusual spending patterns happen, their card is frozen for a set time, say, 10 weeks, unless a nominated trusted friend/mental health caseworker agrees it should be unfrozen, for example, as the high spend is ‘just due to a house move’.

    While particularly powerful for those with depression- or bipolar-triggered spending sprees, anyone should be able to use it. As former No. 10 head of policy Paul Kirby (one of our trustees) says: “Don’t add the stigma of calling it a mental health protection, instead just a high-control option”.

    Yet there are challenges to making it happen – not least that ‘trusted person status’ simply doesn’t exist in regulations (not without the huge rigmarole of a lasting power of attorney).

  • Credit freeze. This would allow people to choose to lock their credit file so they can’t apply for any new credit. Unlocking would take a set time – say, 30 or 90 days (research is needed) – affording breathing space to allow things to calm down before you’re locked in to debt.

Of course better and quicker treatment times would help too. After all if someone breaks their leg, within a few hours they’re in hospital. They may lose some income, but quickly things get back to normal.

Yet with a mental health breakdown, it can be 16 weeks before an appointment. Meanwhile, they may lose their job as they’re not able to cope with telling work why they’re absent; and as mental health hits your decision making ability, many people simply don’t deal with their finances. After 16 weeks, this can have a catastrophic financial impact, irrecoverable for years.

It’s time we changed this.

Two sides to every story – apparently I was ‘prickly’ to a journalist when he followed me in the street!

I was slightly shocked today to read a journalist having a go at me for being ‘prickly’. That certainly isn’t my way. Here’s what Jim Armitage wrote in The Independent


Too grand to talk to journalists?

I interviewed MoneySupermarket boss Peter Plumb for a big profile article at his swanky corner office near Soho on Wednesday evening.

On my way in, I bumped into Martin Lewis, the financial journalist who sold Mr Plumb’s company his website, MoneySavingExpert.com, for £80m a few years back.

In his journalistic capacity, Mr Lewis is always on the radio and TV, so, as a fellow hack, I introduced myself and asked if he could give me a quote about Mr Plumb for my article. “Talk to my PR people,” he huffed, breezing off into the afternoon sun.

I wondered if a bit of cash would make me that grand, too. Mr Plumb’s worked with a lot of entrepreneurs in his career: Sir James Dyson, Simon Nixon (founder of MoneySupermarket), and the founders of the Dunnhumby data group, which devised the Tesco Clubcard. He assured me these self-made men aren’t as prickly as they seem.

It’s not that they’re being rude, he assured me, it’s just that they’re more interested in what gets said, than how you say it. Diplomacy is clearly one of Mr Plumb’s strengths.

Now let me explain to you what happened from my perspective.

I was leaving the MSE Towers office building via the front door, late for a meeting. A man I’ve never met starts following me down the street. I turn around and he says: “I’m a journalist for the Evening Standard, I’m doing a piece on Peter Plumb, as I’ve seen you can I ask you a few questions?”

Now I have no idea who he is, and I’m late, so my response simply was: “Can you go through my press team? They handle media requests.” Which they do – people call up and make appointments, that’s how it usually works.

He never did get in touch. If he did I would’ve happily spoken to him.

I’m slightly surprised that he thinks that on an off chance by following me down the street I should drop everything – even though I have prior commitments – and that asking him to arrange it at a time that’s more convenient is somehow unreasonable.

Still he managed to get a story out of it. And now so have I!

Student loan hike: Meeting with Universities Minister to propose mitigation measures

Student loan repayments are being retrospectively hiked from April 2017 – so 100,000s of students and graduates who started uni since 2012 will pay more than they signed up for. In my view, this is against natural justice. So, I’ve been campaigning on it, and today had a meeting with Jo Johnson, Universities Minister, to come up with suggestions to mitigate the damage.

In a nutshell, from April 2017 the level at which student loans are repaid after university was due to rise, in line with average earnings, above £21,000. Last November the Government announced this was being frozen. That means people will pay more than they signed up for, both month-by-month, and in most cases £1,000s more in total in the 30 years before the debt wipes.

The worst thing about this is how can future students trust the system if they know the Government can change the deal once they’ve already signed up?

Before I explain where we are now, if you’re not up to speed, here are links to past blogs that tell the story and explain in more detail…

– Help fight the Government’s student loan U-turn: Read this for a full background of why this is such an issue.
– I’ve hired lawyers to investigate judicial reviewing Govt’s retrospective student loan hike
– The scrapping of student grants – what it means and how bad is it?
– An open letter to David Cameron on the student loan hike
– David Cameron snubs my student loan hike letter: Instead he arranged for me to meet Jo Johnson, which happened today.

My current strategy is twofold. I would like the whole policy reversed. After campaigning, consulting, getting hundreds of people to write to their MPs, I don’t think any protest will make a difference – only a legal challenge. Sadly, the legal advice I’ve had suggests a judicial review won’t work; the next option is to look at whether it is challengeable on contractual terms.

The other tactic – if this is going to happen – is trying to see what can be done to mitigate the damage. And that was the mainstay of my meeting today. After expressing my complete objection to this retrospective hike, I came up with a number of suggestions, which I’ve put below (mostly in note form).

I’ve put them in order of ease and likelihood. I was pleased that the minister was reasonably receptive to some of them, so you never know…

  • Tell affected students. Every student who has taken out a loan since 2012 should be written to, to explain the threshold will be frozen and not increased as planned. It should include practical examples of what that means.
  • Future student loan applications and all official marketing must clarify that terms and conditions might change. While it’s mentioned in the small print currently, the Student Loans Company should put tangibly and up front on loan applications what the key terms are – and what can be changed retrospectively. Or, at the very least, a warning that these terms aren’t fixed.
  • People in financial crisis should have the option of deferment or a temporary payment reduction. Graduates must be able to apply for a deferment or temporary reduction in payments, so that the retrospective hike does not harm people who are in financial crisis. This includes people who are in debt crisis, are supporting other family members, and in any other extenuating circumstances.

    This could be done either by deferring payments (and in most cases that would mean an overall cost reduction as most people won’t make it up before the 30 years when the debt wipes) or by setting up a fund which meets payments for them.

  • The FCA ‘treating customers fairly’ principle should apply to student loans. There are six consumer outcomes that commercial lenders have to strive to achieve to ensure they ‘treat their customers fairly’. Among the six aims, lenders have to provide borrowers with clear information and keep them appropriately informed before, during and after the point of sale.

    Lenders also have to make sure that consumers are provided with products that perform “as firms have led them to expect”. Plus, the associated service is of an acceptable standard and as they have been led to expect.

    The Student Loans Company should be subject to these regulations, or at the very least a mirroring of these regulations within its own internal adjudication structures.

  • Student loan terms and conditions should be locked into statute. This would mean that students can have certainty that what they sign up for is what they will get. I suspect this is unlikely.

    If not, a transparent process must exist for retrospective changes to student finance. The Business, Innovation and Skills (BIS) Select Committee should have to approve retrospective changes to student loans. This would be similar to how the Treasury Select Committee has to scrutinise and approve appointments for the Office for Budget Responsibility.

Please let me know what you think and any other mitigation suggestions (I can always add addendums) below.

A UK-record 135,000 people switched energy in the MSE collective switch 4

The MSE collective switch 4 closed last Thursday, and we’ve been blown away, bowled over and victim of at least four other clichés by its success.

The first three collective switches had seen 67,000, 72,000 and 86,000 people change their energy supplier – and each of those was in turn the UK’s biggest ever. Yet this is in a different league.

The stats:

  • MSE collective switch started: 2 February
  • MSE collective switch lasted: 16 days
  • Total number of collective switches: 135,000
  • Total number of switches via Cheap Energy Club during the period: 155,000
    (usually the collectives are the cheapest, but for some they’re not. We show a full market comparison, so some do choose others)
  • Likely total savings on energy bills: c. £60m
    (based on typical usage, we don’t have exact figure yet)
  • Total cashback to be paid out: £4m
    (we get paid £60 per dual fuel switch and give half back in cashback, the rest goes to cover suppliers, pay costs and hopefully make us some profit)
  • Likely percentage of first-time switchers: 60%
    (based on previous collectives as we don’t have the data yet – collectives encourage first timers to switch far more than normal)
  • For comparison, in a typical 16-day period across the whole UK, there are 250,000 switches

Did you miss it? If you did there are still huge savings available by switching tariff, typically £300 per home. It only takes five minutes – just use our Cheap Energy Club.

What was so good about this collective?

Our lead deal was from British Gas. While much is made of new entrants to the market, and indeed that’s something I support, many people just want to stick with a brand they know. And to get that at a price that undercuts every other supplier on the market seemed to be a winning combination.

Indeed anecdotally we heard from many people who have elderly parents who have always refused to switch.

So the ability to simply switch their tariff not their firm – so a switch from British Gas to a cheaper British Gas tariff and save typically £300 a year, plus £30 cashback – made it an easy bit of persuasion.

Here’s just a selection of tweets we received.

And even one man on BBC One’s Question Time commented on it. Here’s Nick Rendel’s question submitted to the programme…

“My 87-year-old mother pays 50% more than me for electricity. Why has Ofgem been so hopeless at protecting the vulnerable?”

And what he said:

“Actually she’s not anymore. I changed it at the weekend. I only discovered it at the weekend and we’ve sorted it out.

“I am concerned about people who don’t have internet access and can’t access the sainted Martin Lewis’s website to get the best prices on the market, which are incredibly lower than the standard rate price that 70% of the population are paying.”

Before I buff my halo, I think there were other factors at play here too.

  • The timing was strong. Energy was in the news with the big six all announcing price cuts during the collective – of course the savings from these are trivial in comparison with the savings from switching in the collective.
  • The fact that due to a rule change you had to be pre-registered to get this collective, so we had to pre-announce that the collective was coming, helped too. Also, the fact numbers were capped (albeit at a high level) seems to have made people engage more quickly.
  • Of course the fact that we do all the checks, ensure boosted customer service, and make sure we follow up if anyone is having problems helps too (huge thanks to MSE Archna, Dan, Rose, Roxanne and the rest of the energy team, who’ve worked very hard arranging this and answering over 5,000 queries).

And of course, as successful as this one is, we hope to do more in future – as long as the deals are good enough. Don’t let that put you off switching now though, if you haven’t.

Hilton Hotels is suggesting that if you’re broke, you should spend £129 a night on its hotels

This is a marketing fail. I’ve just received the following press release from Hilton Hotels, which is one of the most ill-judged I’ve seen in a while. Someone at it, or its PR firm Grayling (whoever wrote it) needs to get in the real world. It either shows a firm totally out of touch or a very poor piece of PR that no one has given any real thought to.

Here’s the introduction of it…

The best broke-ations, city breaks that won’t break the bank

Are you feeling the pinch after shopping for Christmas and partying at New Year? We all are! But this doesn’t mean that you have to stay at home feeling sorry for yourself. If someone told you that you could go on holiday even after your Christmas spending, would you believe them? Hilton Worldwide has put together a list of the best broke-ations, city breaks that won’t break the bank.

Sunshine on a budget

Dubai

If you’re seeking a bit of sunshine during these dreary months, but don’t want to go overboard, Hilton Dubai is the place for you. From just 129 GBP per night, the hotel offers you a home away from home in the Port Rashid district of Dubai. Why don’t you hop on the Dubai Metro and discover all that Dubai offers. The convenient location makes the hotel a great place to stay.

It then continues with a range of other hotels some admittedly in the ‘from £40 to £60’ a night price range.

Now I’ve nothing against people paying £129 for a hotel room (as long as it’s good value and not available cheaper elsewhere) so if it wants to advertise these as discounted – as long as they’re cheaper than normal, all is fine.

Yet portraying this as a holiday for people who are “broke” is poor taste. The dictionary definition of broke is “having completely run out of money” – I think perhaps in that case £903 a week for a hotel is quite a lot, and of course let’s remember you still have to pay for the flight. Plus these are “from prices”, in other words, you’ll likely pay more.

I suspect some ‘blue sky creative thinking’ marketing team came up with the word “broke-ations” as a nice wheeze, but then the products they chose to connect it to are mis-targeted and brand negative. Back to the drawing board.

British Gas customers – there’s a hidden way to cut £130+ off your bill…

British (and Scottish) Gas is the UK’s biggest energy supplier, serving over 10m homes. And no surprise for a provider still benefitting from its past monopoly advantage, it ain’t cheap!

After all, why should it be – many of its customers stick with it, price hike after price hike, bill after bill.

Currently though, there is a way to stay with BG and hugely slash your cost, but you can’t just call it and ask. Any of its customers in the UK (not Northern Ireland) can do this, providing you…

  • Already do or are willing to pay by monthly (variable) direct debit
  • Use it for dual fuel (so electricity and gas)
  • Are willing to be billed online

What is this magical British Gas money-saving potion?

Quite simply it will sell you the same gas, same electricity, same safety etc as you get right now, but charge less for it and it’ll guarantee it won’t hike the rate for over a year.  Yet you can’t just call British Gas and ask for it.

It’s a new tariff called British Gas All Online January 2019 and it’s only available via comparison sites (we’ve no indication of how long it’ll last, so it could be pulled at any time). So to make it easy, just quickly plug details from your bill – guesstimate if you don’t have it to hand – into our special Cheap Energy Club ‘My Current Supplier’ comparison.

This filters out all but British Gas’s tariffs. Then you can see your exact saving (it depends on where you live and how much you use) and then click the button to turn that tariff on, and pay less.

PS: While this should save you decent money, you can save far more if you’re willing to switch provider. So when you’re looking at the results page of your British Gas comparison, why not play with the filters on the side, to see how much you can save elsewhere too?

The new tariff is a fix, which means you’re guaranteed no price hikes until January 2019 (unlike the normal British Gas tariff, which can be increased any time), though of course if you use more, you’ll pay more. If – as is unlikely if you’re doing this – you want to leave British Gas before then, you’ll pay a £40 early exit fee.

Those who don’t already have a British Gas smart meter will need to book installation for one by 31 July 2018. These automatically send meter readings to your supplier, so you get exact bills and pay only for what you use (for more on that, see our Smart Meters guide). And you’ll need to join the free British Gas Rewards loyalty scheme, but that just earns you things such as free movies from the Sky Store.

PS: If you’re wondering why it’s only available via comparison sites, it has likely done this so it can target switchers from elsewhere, but thankfully it has allowed existing customers to get it too.

How much cheaper is it likely to be?

Someone with typical usage (defined by regulator Ofgem) currently on a British Gas standard tariff (as most with it are) currently pays £1,100/year.

On the same usage, the new tariff will cost you on average (it depends where you live) £995/year. Plus, switch via our Cheap Energy Club and you get £25 cashback, making the saving a typical £130.

Though obviously if you’ve higher bills you’ll likely save more than that, lower bills less than that (yet the cashback is always £25 regardless).

It is worth noting on the same usage the very cheapest deals from elsewhere would save you about £300 (hence the big bold writing in the box above).

Why is there a Sainsbury’s Energy deal in my ‘British Gas only’ results?

Sainsbury’s Energy is just British Gas in disguise – it’s the same company, just selling its wares under a different name. And there’s a new Sainsbury’s deal out at the same time which for some will top the new British Gas deal – it depends on where you live and how much you use.


It’s called Sainsbury’s Price Freeze November 2018, and as the name suggests it’s also a fixed tariff, though the price guarantee is shorter than British Gas’s. If this is cheaper for you, you may decide to plump for it instead. Frankly, it’s a very similar deal, though doesn’t require you to have a smart meter.

How come MSE pays cashback on this?

Like all energy comparison sites, if you can switch through us, we get paid. Though unlike some we still include all tariffs, whether they pay us or not (unless you choose to filter them out).

Yet we aim to give you about half of what we’re paid in cashback. Just to be clear, you get exactly the same deal as you would if you went to the firm (but in this case you can’t do that) plus the cashback on top that you wouldn’t get otherwise.

The rest helps cover our costs and hopefully makes us some profit. We’ve had to drop the cashback from £30 to £25 recently as suppliers can give us less – for more see MSE Jason’s blog.

The secret of how to pick your new energy provider from a list of firms you’ve not heard of

Comparing energy tariffs is easy. Yet as I’ve learnt over the last year, it’s picking your new supplier from a list of unknown names that is putting many off. So I wanted to bash out a quick blog to show you how to navigate through that.

The majority of people in the UK are overspending on energy by 30%, often £300+ a year – simply due to being on the wrong tariff. If you’ve not switched in the last 12 months and are with one of the big six – British Gas, EDF, E.on, Npower, Scottish Power or SSE – almost invariably that means you’re one of those people, as you’ll be on their very expensive standard tariff. If you’re with anyone else, you could still be overpaying too, so the right thing to do is check.

The easy way to check is using a comparison site. That’s necessary as who your cheapest is depends on where you live and how much you use. It’s best if you have your bills to hand to do this, but even if not, most comparison sites will estimate for you and the sin of inaccuracy isn’t as big as the sin of doing nothing. Yet many people find, or at least perceive, switching to be complex.

I’ve always found this difficult to understand, as when even newcomers to my Cheap Energy Club have tried it, the comparison process is completed in an average of around five minutes. And changing itself is no biggie – it’s the same pipes, gas, electricity and safety, and you don’t lose supply. The only difference is price and customer service.

However, when over the last year I’ve observed people switching at my TV roadshows, my eyes have been opened to the real problem. It’s not doing the comparison. It’s picking who to switch to that’s the real problem for many.

Too many small firms you’ve not heard of?

The huge encouragement given for new entrants to the energy market is actually putting many off switching. And to an extent, there’s good reason. The energy market is swamped with new firms, and often at launch they offer super-cheap deals to build a customer base. Yet the customer service feedback on these firms is either limited or worse poor, as they can’t handle the number of customers flooding in.

If you do a comparison right now, almost invariably the first five cheapest providers on the list are those you’ve never heard of – and for many that’s enough to put them off and stop the process.

The simple answer is SCROLL DOWN to a name you know, or one – small or big – which has a good customer service rating.

In fact, with so many new providers, you could scroll down a couple of pages of names and still only find it’s £10/yr or £20/yr more than the very cheapest, still saving you nearly £300/yr on typical usage. To make it easier use this good customer service only comparison energy club link, which automatically selects the service filter.

What if I just want a name I recognise though?

In that case, even though many of the big six have hideous tariffs, they can also offer some good ones too. At the time of writing, the cheapest big six deal for most people on average is a one-year fix with Eon, saving £230/yr compared to the average big six standard variable tariff. Yet always do a comparison, as the cheapest does depend on your situation. Again, to help use this big names only comparison energy club link, which automatically filters out smaller firms.

And remember most cheap tariffs are fixes, meaning you’re guaranteed no price rises for a set time.

What if I just don’t want to switch firm?

Many people ask me questions like: “I’m with Npower – is it cheap?” I can’t answer that, as what you pay depends on which of a firm’s tariffs you are on. Npower, for example, has one of the most expensive standard tariffs – for someone with typical usage it’s £1,161/yr – yet right now it also offers a relatively cheap fix at £969/yr.

In fact, EVERY big six provider has a cheaper deal than its standard tariff. So through gritted teeth, let me say: if you won’t switch as you’re loyal to your existing firm, at least ensure you’re on its cheapest tariff. Call them up and ask them. (Or better, use the what’s my current provider’s cheapest comparison energy club link, which filters out all other firms.  Though if it has tariffs under another name – eg Sainsbury’s Energy is really part of British Gas –  they’re included.)

What if I’m on a prepayment meter?

If you pay by a key or card meter, as many of the country’s poorest and most vulnerable do, then outrageously there’s nowhere near as much competition, and you pay more – though prices have been capped, which has helped a touch. If you do a prepay comparison there are often savings to be made, but often less than £100/yr.

If you can, try and switch to a billed meter. It’s free to do with one of the big six providers, and you’ll usually be credit-scored to check you’re capable of keeping up with payments.

Is comparing safe though? Isn’t it all about energy comparison sites making money?

Comparison sites, including my Cheap Energy Club, do get paid roughly £50 to £60 if they can switch you. Yet the price you pay is the same as if you switched direct with the energy firm. It comes from their marketing budgets, and if not paying a comparison site they tend to be paying advertisers.

In the case of Cheap Energy Club, we roughly split what we get paid with you (our share goes towards the pretty high costs and hopefully makes us a profit too). So on a dual fuel switch, if we can switch you we give you £25 cashback (£12.50 single fuel). That actually results in you getting a better deal than if you went direct to the energy firm (so we have a filter that enables you to factor this into the saving you make).

You have to be careful with some comparison sites as they are now allowed to only show you tariffs that pay them, which means you may not see the whole of the market. For the sake of transparency, Cheap Energy Club always defaults to the whole of the market – obviously if you click a link with a filter on as explained, then that cuts some providers, but not based on whether they pay or not.