Charity calls on regulators to tackle “the loyalty penalty”

The payment of these loyalty penalties has led to 41% of people struggling to sleep due to their finances, while 28% have already cut back on everyday essentials such as food and energy, and 65% are worried about keeping up with their bills. 

Its analysis also discovered that those with the lowest incomes spend almost double the proportion of their income on telecoms as the highest earners. 

Off the back of this, Citizens Advice is calling on regulators to tackle the “loyalty penalty” across the broadband, mobile and mortgages markets. 

The charity first highlighted this as an issue in 2018 after it submitted a “super complaint” on such penalties, with the sectors’ regulators finding in 2020 that the loyalty penalty cost consumers a combined total of £3.4bn every year. 

Such penalties were essentially abolished in January this year by the Financial Conduct Authority by banning so-called price walking, which sees a gradual year-on-year price increase, and by making companies automatically switch their customers to better deals. 

However Citizens Advice is concerned that little meaningful action has been taken in the broadband, mobile and mortgages markets. Regulators have found that the annual loyalty penalty cost £800m for mortgage holders, £451m for broadband customers and £83m for mobile customers paying a bundled contract including a handset. 

As such, if a customer pays the loyalty penalty across all three markets this could cost them £1,144 a year - equivalent to more than half of the current energy price cap. This would result in a monthly cost of £95, which is equivalent to 17 days’ average energy use. 

But of those paying the loyalty penalty, 18% said it’s too difficult or time-consuming to switch, with a quarter of a million not even knowing they could. 

Citizens Advice’s chief executive Dame Clare Moriarty says “finally fixing the loyalty penalty” could put more than twice as much money back in some people’s pockets as the government’s £400 October energy grant. 

She added: “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’re 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.”