Mid-contract price rises still under debate

Appearing on ITV's The Martin Lewis Money Show on January 9th, Jeremy Hunt, the UK's chancellor has said he'll write to the Competition and Markets Authority (CMA) asking them to review mid-contract price hikes.

However, Ofcom, the Government-led industry regulator, has already been reviewing the issue since February 2023, and announced a proposal to ban inflation-linked price rises in December 2023.

In addition, the Advertising Standards Authority (ASA) recently bought in new rules to improve pricing transparency, after a consultation the CMA responded in detail to.

The Money Show

In his show, Martin Lewis asked the chancellor why the Government wasn't simply banning above inflation price rises after increases of up to 17.3% were seen in April 2023.

Jeremy Hunt's response was that he would "write to the Competition and Markets Authority, which is the body that looks into these things independently of politicians."

However, unmentioned is the proposal by Ofcom to indeed ban inflation-linked price rises, with providers either having to list any in-contract increases in pounds and pence, or ensure customers have the right to exit their contract early. A final decision is due to be made by the regulator in Spring 2024.

We also already know the CMA's stance on mid-contract price rises in any case, with their response to the ASA's consultation outlining that they believe CPI and RPI based increases to not be transparent enough, and that variations on price during a contract period are unfair.

The chancellor also raised questions of his understanding of provider costs, when he asserted his belief that broadband provider costs don't go up at all, which has already been quashed by raised issues around Ofcom previously regulating for wholesale network prices to increase by CPI each year.

Hunt said, "when you're a broadband provider, you obviously do have staff whose costs go up and some of those costs you have to feed through your bills. But a lot of your costs are actually the cost of a network - which, once it's in place, doesn't go up at all."

Criticism

While many broadband and mobile providers have defended annual price rises on the basis of needing to support investment in growing networks as well as manage increasing demand from users, some have also come out and criticised Ofcom for causing the problem.

TalkTalk Group CEO, Tristia Harrison said, "The introduction of CPI-linked price rises in 2021 was as a direct result of Ofcom's own decision to raise wholesale prices by CPI."

Indeed, up until March 2021 when they moved to CPI + 3.7% annual rises, TalkTalk previously championed fixed price deals.

Harrison has urged Ofcom to reconsider their approach to wholesale pricing in the Wholesale Fixed Telecom Market Review in 2026, saying, "If Ofcom is to push ahead with tying industry's hands on CPI indexed price inflation, we urge them to urgently review similar CPI inflation for BT Openreach at a wholesale level. The link between the two is obvious; is essential for protecting both consumers and competition, and needs addressing."

Ofcom pre-empted TalkTalk's response to some extent in their latest proposal by outlining how they believe providers are much better placed to manage inflationary costs than consumers are. In addition, they've highlighted research which shows that of the two-thirds of customers who are aware of annual price rises, half don't understand how the rise is calculated, and half don't know what CPI and RPI stand for.

Even if Ofcom do rule against inflation-linked price increases however, it's unlikely to help customers before April 2024, and there's also an issue of further inflation-linked price rises going into 2025 on contracts taken out before Ofcom's decision is made.

While many customers could still be caught out then, TalkTalk recently began offering no mid-contract price hikes as a time-limited offer on some of their full fibre broadband deals. The move, undoubtedly, looks tied to the looming announcement by the regulator.

Upcoming increases

This year's figures for upcoming mid-contract price hikes due in April is often based on the CPI rate for January, which is due to be published on the 17th, so we'll soon find out the cost of the increases many will be facing in 2024.

The CPI rate announced in December was 3.9%, down from 4.6% the month before, while the higher Retail Price Index (RPI), used by O2 and Virgin Media, currently stands at 5.3%, down from 6.1%.

While it's promising inflation is declining, potential price rises for customers based on today's rate of inflation would still mean hikes of 9.2% for those with O2 and Virgin Media, and hikes of 7.8% for customers with BT, EE, Plusnet, and Vodafone. TalkTalk's price rises are a little less, but could still be 7.6% based on today's rate of inflation.

O2 and Virgin Media's use and adoption of RPI has also been pointed out as potentially "[making] the contract term unfair", as the CMA wrote in their response to the ASA's consultation that CPI replaced RPI in 2003, and therefore the continued used of the higher RPI figure has the "effect of increasing the amount of any increase above inflation" and consequently "undermines or removes completely the justification for it".

Overall, we know price rises for 2024 will be less than they were in 2023, however, any in-contract increase that can't be avoided is arguably punitive. Ofcom's announcement to ban inflation-linked increases can't come soon enough, but unfortunately looks unlikely protect customers this Spring.