UK consumers’ energy bills have risen dramatically in recent years, with an average increase from £605 in 2004 to £1,060 in 2010. These ever-increasing bills are continuing to put pressure on UK living standards, and can be attributed to a lack of both supplier competition and production efficiency.

These are the findings of the Institute for Public Policy Research’s (IPPR) latest report, The true cost of energy: how competition and efficiency in the energy supply market impact on consumers’ bills.  

IPPR’s report shows that the UK’s ‘big six’ continue to dominate the energy market, causing consumers to pay £1.9 billion too much on fuel by 2020 because of failures to improve production efficiency. The report comments on how smaller suppliers are present in the market, yet they struggle to break through the stranglehold of the big six.  

The report also highlights the need for tougher regulation. IPPR calls on Ofgem to improve competition and ensure pricing is fairer for consumers. In 2010 the industry watchdog found that the least efficient energy company spent more than twice as much on its operations per customer as the most efficient in the market.

Will Straw, IPPR’s Associate Director, explains: “We are calling on the big six and Ofgem to demonstrate whether efficiency savings are being achieved in the energy market and whether consumers are benefiting from lower bills as a result, as we would expect if competition was working.”

IPPR’s report also points to the increasing wholesale cost of gas – which added £290 to the average energy bill between 2004 and 2010, the level of profits taken by energy companies and the lack of shopping around as just some of the reasons behind rising energy bills. However the report concludes that it is the lack of competition in the energy supply market that is the true driver behind high prices, and that some consumers are paying over the odds as a result.

Commenting on today’s news, Juliet Davenport, CEO and Founder of Good Energy, the UK’s only 100 percent renewable electricity supplier, said: “IPPR’s report is a timely reminder that our energy market is broken, and its households and businesses who are having to foot the bill. We need a new approach that moves away from the dominance of the Big Six energy suppliers, to one that encourages genuine competition and enables individuals, businesses and communities to generate their own power.  That approach is good for people’s bills and an important way of ensuring that people get the quality of service they expect. This report provides some important suggestions on how to achieve that.”

The full report can be found here.