Customer loyalty may be the holy grail for marketers but for many consumers it is coming at a high price, with the UK’s broadband and mobile providers accused of being among the worst businesses for charging existing customers more.
Citizens Advice first raised the issue of “loyalty penalties” back in 2018 by filing a super-complaint with the Competition & Markets Authority, arguing 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.
By 2020, the sectors’ regulators had discovered a combined loyalty penalty of £3.4bn every year.
In January this year, the Financial Conduct Authority essentially abolished the loyalty penalty for car and home insurance by banning price walking – gradual year-on-year price increases – and making companies automatically switch their customers to better deals. It has paused investigating the cash savings market.
But other sectors are dragging their feet, Citizens Advice claims, and it is now calling on the respective regulators, including Ofcom, to finally tackle the loyalty penalty. It says no one should be punished for being loyal in the midst of a cost-of-living crisis which is set to get worse for millions of UK consumers.
The analysis of 165,000 budgets of people who came to Citizens Advice for debt help found that those with the lowest incomes spend almost double the proportion of their income on telecoms than the highest earners; one in seven customers are still paying the levy in the midst of a cost-of-living crisis.
The charity also found that two-fifths of people (41%) who are paying the loyalty penalty have struggled to sleep because of their finances. Nearly three in 10 (28%) have already cut back on everyday essentials, such as food and energy, and almost two-thirds (65%) are worried about keeping up with their bills.
Regulators found annual loyalty penalties of £451m for broadband customers, and £83m for mobile customers paying a bundled contract including a handset. It also calculates that for mobile, the loyalty penalty cost per person per year was £83, with 1.5 million UK adults paying the loyalty penalty during the cost-of-living crisis. For, broadband the loyalty penalty cost was £61 per person per year from 7 million paying adults.
Citizens Advice chief executive Clare Moriarty said: “The Government did the right thing by strengthening its cost-of-living help, but finally fixing the loyalty penalty could put more than twice as much money back into some people’s pockets as the £400 October energy grant.
“As we all pull together to weather the cost-of-living crisis, it’s incredibly frustrating to see there are still firms out there that prefer to help themselves than help the people who are most in need. The time for piecemeal pledges has passed. Regulators must tackle the loyalty penalty across these three markets – no more excuses, no more delays.”
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