Ofcom propose ban on inflation-linked mid-contract price rises

After a review of mid-contract price rises, Ofcom is concerned that inflation-linked price rises do not provide sufficient certainty or clarity on the prices customers will pay.

Under new plans, broadband providers would have to list any in-contract price rises in pounds and pence and stop using Consumer Price Index (CPI) or Retail Price Index (RPI) linked increases.

The consultation on these changes is due to run until 13th February 2024, with a final decision published later in Spring 2024.

Source: Ofcom

Inflation-linked price rises

Following on from an investigation into mid-contract price rises started in February 2023, Ofcom is now proposing a ban on basing these increases on inflation.

Mid-contract price rises came under fire last year as inflation rose to 10.5% on the Consumer Price Index in January 2023, with the Retail Price Index even higher at 13.4%.

Broadband and mobile providers then usually add an additional 3.9% to these inflationary rates, which pushed up prices for in-contract customers by as much as 17.3% in April 2023.

As Choose has campaigned since January 2022, inflation-linked price rises don't allow customers the ability to "have agreed on an informed basis" and are also not "transparent", as is required by Ofcom's existing guidelines.

The argument is that CPI and RPI based price increases simply can't be known at the time the consumer signs up to the contract, which Ofcom is now recognising in their proposals, confirming "price uncertainty can impose financial risks on consumers and have a direct adverse impact on them".

Proposals

Ofcom are stopping short of proposing in-contract price rises are banned entirely however, with the regulator suggesting broadband and mobile providers should use pounds and pence increases instead.

Percentage based increases are also being ruled out, with an example of an allowable price increase given as "Your monthly price is £30 until 31 March 2024, increasing to £31.50 on 1 April 2024 and to £33 on 1 April 2025".

While pounds and pence increases will be a lot clearer for consumers, it then becomes arguable why they would be needed at all. A provider could simply spread the cost evenly over the course of the contract, removing the unnecessary complication of varying prices.

Indeed, without an inflationary measure, in-contract price increases seem to just add an unnecessary level of complication, which could be argued only serves to cause consumer harm through added confusion.

The fact that providers could be considered able to plan upfront what these exact increases would be in pounds and pence, actually flies in the face of the reason inflation-linked mid-contract price rises were introduced in the first place.

At which point, it would be fair to say in-contract price rises could (and therefore should) actually be banned outright.

However, it's worth noting that in Ofcom's proposal they outline how they won't be banning or preventing providers from using "prices may vary" terms, which means providers could still increase prices in-contract simply by giving customers notice and the option to leave early.

Ofcom suggest the only other solution would be to require providers to offer fixed prices for the duration of the contract, although they suggest these deals could still become subject to unspecified price increases.

What they have ruled out entirely however, is the option to simply provide more upfront information on inflationary price rises, despite the ASA recently bringing in new advertising guidelines requiring just this.

Overall, it seems there isn't a clear alternative to in-contract price rises, with the options presented all carrying their own drawbacks or arguable need. An outright ban therefore is already starting to look like a much more common-sense approach.