Cheap energy deals face a new switching penalty
The cheap fixed deals that should arrive when wholesale prices fall could be a lot less cheap. Ofgem wants to bring back a charge on suppliers who win switching customers, and Martin Lewis says it amounts to a switching penalty that protects energy firms’ profits at your expense.
The regulator opened a consultation on Friday 16 October to reactivate the market stabilisation charge. It closes on 29 October. If Ofgem goes ahead, the charge could be live as soon as November, right as households head into the most expensive months of the year.
The charge does not land on your bill. It is paid by the supplier that takes you on, to the supplier you left. But the cost has to come from somewhere, and the obvious place is the price of the deal you were switching to.
In other words, the one escape route from the price cap could get narrower just when you need it.
Martin Lewis: a switching penalty that dampens competition
The MoneySavingExpert founder did not mince his words. “In a nutshell, it means if wholesale energy prices drop sharply, the cheap fixes and switcher deals offered will be a lot more expensive, in order to protect energy firms’ profits,” he wrote.
He called the plan a form of switching penalty and questioned whether suppliers need the protection at all. “I doubt we are at the domino risk of suppliers going bust in the way they did in the early twenties.”
“A good few energy firms have made large profits since then, and protecting them over winter by effectively dampening competition because it’s ‘not their fault’ feels raw. After all, we don’t take their profits off them when they make them ‘through no fault’.”
His bigger worry is what it does to the good news, if it ever comes. “Until now, my hope had been that at some point the Middle East situation would de-escalate, wholesale rates would drop. While it would take months for that to feed into the price cap, other cheaper tariffs would be available to switch to. That would still happen, but the savings could be nowhere near as good as otherwise.”
Why Ofgem wants the switching penalty back
Ofgem’s case is about keeping suppliers standing. Suppliers buy energy months ahead for customers on the price cap. If wholesale prices fall sharply and those customers leave in large numbers for cheaper deals, the supplier is stuck with expensive energy and nobody to sell it to.
The market stabilisation charge was Ofgem’s answer to exactly that problem during the energy crisis. It ran from April 2022 to March 2024. Earlier this year Ofgem put the rule back into supplier licences in a dormant form. This consultation would switch it on.
Neil Kenward, Ofgem’s interim director general of markets, said: “We’re preparing for what is likely to be a difficult winter for many households. While the energy market is stronger than it was during the energy crisis, volatility remains, and the market stabilisation charge helps to protect consumers from that volatility.”
He added: “In volatile market conditions, it’s important that suppliers can continue to secure the energy their customers need without taking unsustainable risks.”
Ofgem stresses that reactivating the charge would not automatically create costs or raise bills. Payments between suppliers would only be triggered if wholesale prices fell sharply enough. The move follows the price cap rising by around 4% in October, on the back of gas prices pushed up by conflict in the Middle East.
Would the switching penalty raise your bill?
Not directly, and not at all while wholesale prices stay high. The charge is paid between suppliers and only when prices fall sharply.
The damage is to what comes next. When wholesale prices drop, suppliers normally rush out cheap fixed tariffs to win customers, months before the price cap catches up. That window is where switchers make their biggest savings. A supplier that has to pay a switching penalty for every customer it wins will price its fix higher to cover it.
How much higher depends on how far prices fall and how suppliers react, so treat any figure you see as an estimate. Switching would still beat sitting on the cap. It would just beat it by less.
What you can do before the switching penalty arrives
This is a consultation, not a done deal, and Ofgem is taking responses until 29 October. But the direction of travel is clear enough to act on.
If you are on a standard variable tariff, do not bank on a bargain turning up later. Check what a fix costs today against what you pay on the cap. If the numbers work, lock it in. If they do not, at least you decided with the facts in front of you rather than letting the default decide for you. Our switching checklist covers the four things to look at.
Your supplier is quietly counting on you doing nothing this winter. Now the regulator might be too.
Roo has done the boring bit. You just need about a minute.
Switching penalty: quick answers
- Is the switching penalty a fee I pay when I switch energy supplier?
- No. The market stabilisation charge is paid by your new supplier to your old one. You can still switch whenever you like. The concern is that suppliers will price their cheap deals higher to cover it.
- When could the switching penalty start?
- Ofgem’s consultation closes on 29 October 2026. If it goes ahead, the charge could be active from November 2026. That is not yet confirmed.
- Should I fix my energy tariff now?
- Only if a fix available today costs less than what you pay on the price cap for your usage. Compare the real numbers rather than the headline, and treat any future saving as an estimate.
