Ofcom bans inflation-linked mid-contract price rises

Following a consultation which began in January 2024, the industry regulator Ofcom has chosen to ban inflation-linked mid-contract price rises from January 2025.

Broadband and mobile providers will have to include any contract specified annual price rises in pounds and pence to ensure consumers have transparency and clarity.

The announcement comes after many providers, including BT and Vodafone have already adopted pounds and pence price rises.

Source: Ofcom

Pounds and pence

Ofcom have decided to ban inflation-linked mid-contract price rises, and new rules announced today will ensure providers must specify any in-contract increases in pounds and pence.

The new rules stipulate that both inflation-linked and percentage-based price rises are no longer allowed, although providers are free to choose the amount of any annual price rise as long as it's included clearly at the point of sign up in pounds and pence. Providers are also required to be clear about when any price rises will occur.

It's worth noting that while this change applies to the "Core Subscription Price", it doesn't apply to all additional items a customer might be paying for, such as out of allowance call charges.

Basically, anything included in the package and paid for each month should be part of the Core Subscription Price, including service add-ons, but items with more variable charges, like calls, are excluded from the definition.

How much?

While the new rules will apply to contracts taken out after 17th January 2025, some providers, including BT, EE, Plusnet and Vodafone have already updated their pricing policies to the new pounds and pence based method.

So far, all providers have opted to increase broadband prices by £3 per month, with mobile contracts increasing by between £1 and £1.50 per month instead.

Coming up with a comparable 'CPI + X%' figure will vary depending on how much the broadband package costs at the start of the contract. For example, a £3 increase on a £25 broadband bill would amount to a 12% increase, while on a more expensive bill of say £40 a month, it would be nearly half that, at just a 7.5% rise.

That's equivalent to a Consumer Price Index (CPI) rate of 8.1% or 3.6% respectively (plus the standard +3.9%). Yet, CPI is already down to its target of just 2%.

Whether this move will financially benefit consumers or not then will vary, but certainly for those on simpler low-cost deals the rises won't be much cheaper than they were when Ofcom felt it necessary to step in.

Indeed, if inflation stays at its target rate of just 2%, the move to pounds and pence based rises has been at a time when providers have been able to lock-in more expensive rises under the guise of transparency, and customers will now pay more each year than they would have done under the old 'CPI + X%' model.

Annual price rises

Ofcom's ruling on mid-contract price rises comes after the regulator starting reviewing the practice in February 2023, following annual price rises as high as 17.3% in some cases.

While there are drawbacks to the pounds and pence methodology, as we've seen, the move has been made to ensure consumers can better understand how their bill will increase so they can better budget for annual price rises when they sign up to a new contract.

Certainly, inflation-linked rises are hard, if not impossible, to predict up to 12 months in advance and requiring customers to do so was already a clear breach of Ofcom's rules on transparency and that the "subscriber can properly be said to have agreed on an informed basis".

So, Ofcom surely had to act, but whether they've really gone far enough is still up for debate.