UK households are once again being warned about the “loyalty penalty” in the energy market. Despite the Ofgem price cap and a gradual return to stability since the 2022 energy crisis, millions of customers who remain with their default supplier are paying more than they need to.
Industry analysts say that with fixed tariffs now reappearing below the price cap, loyal customers risk missing out on meaningful savings this winter.
What is the loyalty penalty?
The loyalty penalty refers to the extra costs households pay when they remain on standard variable tariffs instead of switching. Suppliers often reserve their most competitive offers for new customers, leaving existing ones paying higher rates over time.
Before the crisis, the Competition and Markets Authority estimated that UK households were overpaying by £1.4 billion each year due to loyalty to their supplier. While the crisis temporarily froze switching opportunities, the market has now reopened — and so has the risk of paying more by standing still.
Why default tariffs cost more
Default tariffs are covered by Ofgem’s price cap, which limits the maximum unit rates and standing charges. However, the cap only sets an average benchmark. Tariffs vary across the country, and some suppliers now offer fixed rates that are 8–12% lower than the October 2025 cap.
For households on standard variable tariffs, this means they could be spending hundreds of pounds more per year than necessary.
Shay Ramani, CEO of Free Price Compare, explained:
“Staying loyal to your supplier might feel convenient, but it is rarely the cheapest option. With new deals returning, households should take the opportunity to compare energy deals and see what’s available. Even a small monthly saving can add up over the winter.”
The return of fixed tariffs
Several major suppliers, along with newer entrants, have started offering fixed-rate deals again. These tariffs provide price certainty for 12 to 24 months and are often priced below the cap.
For households struggling to budget, this stability can be valuable. Locking in a fixed rate helps avoid potential rises next spring while giving clarity on monthly outgoings.
Industry experts say the reintroduction of these tariffs signals a more competitive market, with suppliers keen to rebuild customer bases after years of turbulence.
Prepayment customers still at a disadvantage
The loyalty penalty is even harsher for households using prepayment meter tariffs. These customers tend to pay higher standing charges and unit rates than those on direct debit, yet switching opportunities for them are more limited.
With over four million households using prepayment meters, campaigners argue that this group faces a double burden — higher costs and fewer choices. Ofgem has pledged to review fairness in the prepayment sector, but for now, many customers are left with little room to cut bills.
Why switching matters more than ever
Despite the return of deals, switching levels remain lower than before the crisis. Analysts say consumer habits have changed, with many families unsure whether better tariffs truly exist.
Yet evidence suggests that households willing to shop around can save money immediately. By carrying out a compare energy deals check, customers can see in minutes how much they could save by moving away from their default tariff.
Shay Ramani noted:
“The only way to know if you’re overpaying is to check. If you switch energy supplier , you don’t just cut bills — you also avoid the trap of loyalty pricing, where sticking with the same provider ends up costing you more over time.”
Who benefits from switching?
- Low-usage households: Those hit hardest by high standing charges.
- Fixed-income families: Pensioners and households on benefits who need predictable monthly bills.
- Heavy users: Families with high energy consumption who can benefit most from lower unit rates.
Even modest reductions can make a difference in managing the ongoing cost of living crisis.
Support and protections
While switching is one of the fastest routes to savings, vulnerable households can also access wider support:
- Warm Home Discount (£150 rebate for eligible groups).
- Winter Fuel Payments (up to £300 for older households).
- Supplier hardship funds and debt relief schemes.
These measures can provide some breathing space, but advisers stress they are not a replacement for reviewing tariffs regularly.
Looking ahead
The loyalty penalty is set to remain a key challenge in the energy market. Unless households act, millions risk paying more than necessary through the winter of 2025–26.
With fixed tariffs returning, switching options open, and comparison tools available, customers now have more power to protect themselves from overpaying. For many, breaking loyalty could be the smartest financial decision this winter.