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Since April 2022, UK energy suppliers can't offer cheaper tariffs to new customers. But economic analysis suggests this policy may actually harm consumers by removing competition.
Since April 2022, UK energy suppliers have been banned from offering cheaper tariffs exclusively to new customers. This Ban on Acquisition Tariffs (BAT) was designed to eliminate the "loyalty penalty" where inactive customers pay more than switchers. But economic analysis suggests the policy may actually harm consumers by removing the primary mechanism suppliers use to compete for customers.
In April 2022, during the height of the energy crisis, Ofgem introduced a seemingly consumer-friendly measure: the Ban on Acquisition Tariffs, or BAT. The policy is simple—energy suppliers can't offer better deals to new customers than they offer to existing ones. No more "introductory discounts," no more "switcher specials."
The stated goal was noble: protect loyal customers from being penalized for their loyalty. Stop the so-called "loyalty penalty" where people who don't actively shop around end up paying hundreds of pounds more than those who switch regularly.
But there's a problem. What one person calls a "loyalty penalty," an economist would call a "shopper's discount." And when you ban shopper's discounts, you remove one of the key ways suppliers compete for your business.
This article examines the economic case against the BAT, exploring who really benefits, who loses, and what it means for competition in the UK energy market.
The Ban on Acquisition Tariffs prevents energy suppliers from offering fixed-term deals exclusively to new customers. Every tariff must be available to both new and existing customers on equal terms.
BAT introduced as temporary crisis measure alongside Market Stabilisation Charge (MSC) to prevent supplier failures
Ofgem extends BAT to March 2025, signals intention to remove it after 6 months
Statutory consultation: Ofgem "minded-to" remove BAT in October 2024
U-turn: Ofgem retains BAT following pressure from consumer groups and suppliers
BAT extended to March 2026
Ofgem consulting on making BAT permanent as part of future price protection framework
What began as a temporary stability measure during the 2022 energy crisis has evolved into a potentially permanent feature of the market—despite Ofgem initially planning to remove it.
To understand why the BAT may harm consumers, we need to understand how markets naturally develop different prices for different customer segments. This isn't a bug—it's how competition works.
Think about your gym membership. Many gyms offer "January specials" with waived joining fees or discounted first-month rates. Are they penalizing their existing members? No—they're competing for new customers. The same principle applies across countless markets:
This is called price discrimination, and in competitive markets, it's actually pro-consumer. Here's why:
Step 1: Supplier A offers an aggressive acquisition tariff to win customers from competitors
Step 2: Customers who actively shop around switch to get the better deal
Step 3: Supplier B responds with their own competitive offer to prevent customer loss
Step 4: Competition intensifies, driving down overall price levels
Result: Engaged customers save money, and suppliers must work harder to retain and attract customers
Acquisition tariffs are the mechanism through which suppliers compete. Remove them, and you remove a key competitive pressure.
The £1.4 billion annual "consumer detriment" calculation from the CMA's 2016 energy market investigation has become the cornerstone justification for interventions like the BAT. But this figure has been challenged by regulatory economists.
The economic reality is that competitive markets operate on equilibrium. If you mandate that suppliers can't charge existing customers more, they don't just eat that cost—they reduce how much they're willing to discount for new customers. The net result? A flattening of prices where:
The distributional impact of the BAT reveals an uncomfortable truth: the policy may transfer wealth from the engaged poor to the disengaged rich.
Research suggests that customers who actively shop around for energy deals tend to be time-rich and money-poor—people for whom saving £200/year on energy is worth the effort of comparing tariffs and switching suppliers.
Conversely, customers who don't switch tend to be time-poor and money-rich—busy professionals who value convenience over seeking out the absolute best price.
The BAT forces money-poor customers (who previously saved by switching) to subsidize money-rich customers (who couldn't be bothered to switch).
As the Institute of Economic Affairs put it: "Ofgem's new rule makes the money-poor pay more money, and the money-rich pay less."
| Group | Impact | Why |
|---|---|---|
| Disengaged customers | Small gain | Pay slightly less than they did on SVT, but not as much as active switchers used to save |
| Large suppliers | Gain | Protected from competitive pressure, easier to retain customers without offering aggressive deals |
| Active switchers | Large loss | Lose access to acquisition discounts, save less overall |
| Challenger suppliers | Loss | Can't use aggressive acquisition pricing to build customer base |
| Comparison sites (PCWs/TPIs) | Loss | Reduced tariff differentiation means less value in comparison, lower switching rates |
When Ofgem consulted on removing the BAT in May 2024, the responses revealed a clear divide:
The BAT's most serious flaw is that it removes the primary tool suppliers use to compete: attractive acquisition offers. This has cascading effects throughout the market.
If all tariffs look similar, why would customers bother switching? The whole point of shopping around was to access deals unavailable to existing customers. Remove that differential, and you remove the incentive to engage.
Illustrative projection based on historical switching behavior and market analysis.
Small and medium suppliers rely on competitive acquisition pricing to build their customer base. How else can a startup energy supplier convince customers to leave British Gas or OVO Energy? The answer was always: offer them a better deal.
The BAT makes it much harder for new entrants to compete, cementing the position of large incumbent suppliers.
When competitive pressure weakens, overall price levels tend to drift higher. Without the discipline of aggressive acquisition pricing keeping suppliers on their toes, there's less incentive to operate efficiently or pass cost savings to customers.
Competition doesn't just drive prices—it drives innovation. Suppliers competing for customers develop better apps, smarter tariffs, improved customer service. When the main competitive tool (acquisition pricing) is removed, suppliers have less reason to innovate.
The BAT isn't the first time regulators have tried to prevent price discrimination in UK energy markets. Previous attempts have consistently failed.
In 2009, Ofgem introduced a similar policy preventing suppliers from discriminating between payment methods or regions. Leading economists warned at the time that this would "stifle competition" and have "harmful consequences for consumers."
The Competition and Markets Authority's 2016 energy market investigation concluded these interventions were inappropriate regulatory interventions that damaged market competition.
The good news is that better alternatives exist—policies that protect vulnerable customers without destroying the competitive mechanism that benefits engaged customers.
In 2022, the Financial Conduct Authority required home and motor insurance providers to ensure renewal prices are no higher than equivalent new customer prices. This approach:
Applied to energy, this would mean your supplier can't roll you onto a tariff more expensive than what they're offering new customers—but they can still compete aggressively for new customers.
Rather than ban price differentials, require suppliers to automatically move customers to their best available tariff when fixed contracts end. This gives customers the benefit of competitive pricing without requiring active switching.
Mandate that suppliers clearly show existing customers what new customers are paying. Annual statements could include:
Allow customers to authorize third-party services (like comparison sites or consumer groups) to automatically switch them to better deals. This combines the protection of automatic switching with the competitive benefits of acquisition pricing.
Rather than blanket restrictions that affect all customers, focus protection on those genuinely unable to switch:
These customers could have price cap protection while the broader market remains competitive.
Keep markets competitive through acquisition pricing
Protect vulnerable customers through targeted interventions
Empower all customers through transparency and easy switching
Result: Lower overall prices, stronger competition, and genuine protection for those who need it
The BAT debate ultimately comes down to a choice between two philosophies:
Comparative assessment based on economic theory and market analysis.
Approach 1: Protect disengaged customers by constraining competition
Approach 2: Empower all customers through competition and transparency
Economic theory and historical evidence overwhelmingly support Approach 2. Yet the BAT represents Approach 1.
The Ban on Acquisition Tariffs was born from good intentions during a genuine crisis. The loyalty penalty is real, and customers who don't actively engage with the market do often pay more. That's a legitimate concern.
But the solution isn't to destroy the competitive mechanism that benefits engaged customers and drives overall price efficiency. The BAT treats the symptom (price differentials) while ignoring the disease (customer disengagement).
Competition requires differential pricing. Suppliers need to be able to offer attractive deals to win customers from competitors. Remove that tool, and you remove competition itself.
The result? Protected incumbent suppliers, reduced market dynamism, less innovation, and—ultimately—higher prices for everyone.
Better alternatives exist. We can protect vulnerable customers through targeted interventions while preserving the competitive market that benefits everyone else. We can make switching easier through transparency and automatic services. We can cap renewal prices without banning acquisition discounts.
As the energy market returns to stability post-crisis, the case for permanent BAT weakens further. This was always meant to be a temporary measure. Making it permanent would be a mistake—one that locks in higher prices and weaker competition for years to come.
The UK energy market needs more competition, not less. It needs innovation, not stagnation. And it needs policies that empower customers to make informed choices, not policies that protect them from the very competition that drives better outcomes.
The BAT should be phased out as originally intended, replaced with smarter alternatives that preserve competition while protecting those who genuinely need it.
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Sources: Ofgem consultations and decisions on the Ban on Acquisition Tariffs (2024-2025), Competition and Markets Authority Energy Market Investigation (2016), analysis from Frontier Economics on loyalty penalties and pricing interventions, Institute of Economic Affairs commentary on the price mechanism, academic research from Professors Catherine Waddams, George Yarrow, and Sir John Vickers on regulatory economics and competition policy, Financial Conduct Authority insurance pricing reforms (2022), Citizens Advice super-complaint on loyalty penalties (2018), and statutory consultation responses from energy suppliers, price comparison websites, and consumer groups. The BAT timeline reflects official Ofgem decisions and consultation documents published between February 2024 and January 2026.
Related reading: Why UK Electricity Bills Follow Gas Prices · The Home Mover's Energy Trap