Ofcom clamps down on mid-contract price rise clarity
Staff Reporter
July 19, 2024
Customers must be told upfront in pounds and pence about any price rises their provider includes in their contract, under new consumer protection rules announced today by Ofcom.
UK phone, broadband, and pay TV companies will no longer be able to include price rises linked to future inflation rates in their contract terms.
New Rules from January
From January 27, 2025, providers will be prohibited from including inflation-linked or percentage-based price rise terms in all new contracts. Consumers will be able to enter into contracts featuring £/p information ahead of annual price rises in 2025.
BT and Vodafone have already changed their pricing practices in response to Ofcom’s consultation.
“Customers have not had sufficient certainty and clarity about the prices they will pay and have unfairly assumed the risk and burden of financial uncertainty from inflation, which is something people cannot predict and do not understand well. So we have decided to ban this practice,” said Ofcom.
Transparency
Any price rise written into a customer’s contract from January 2025 will need to be set out in pounds and pence, prominently and transparently, at the point of sale. Providers will need to be clear about when any changes to prices will occur.
“With household budgets squeezed, people need to have certainty about their monthly outgoings. But that’s impossible if you’re tied into a contract where the price could change based on something as hard to predict as future inflation,” the regulator said. “We’re stepping in on behalf of phone, broadband, and pay TV customers to stamp out this practice, so people can be certain of the price they will pay, compare deals more easily, and take advantage of the competitive market we have in the UK.”
“Ofcom’s job is to make sure consumers can shop around with confidence and take advantage of this. Under our current rules – which we strengthened in 2022 – providers that specify price rises in contracts from the start must make this clear before customers sign up. If they don’t, they must give customers one month’s notice and the right to exit penalty-free when they increase prices mid-contract.
Luna-Esteban: concerned
Review
“In recent years, more and more providers have been including an annual price rise in their contracts that is linked to future inflation, which is very hard to predict, plus an additional percentage – typically 3.9% – implemented every March or April. We estimate that, as of April 2024, around six in ten broadband and mobile customers were on contracts subject to inflation-linked price rises.
“We have been concerned that this makes it difficult for customers to know what they will pay over the course of their contract. So last year we reviewed this pricing practice and proposed to ban it after our consumer research found that awareness and understanding of these terms are very low.
Ofcom says more than half of broadband customers (55%) and pay-monthly mobile customers (58%) do not know what inflation rates such as CPI and RPI measure. Of those who are with providers that use inflation-linked price rises, very few broadband customers (16%) or mobile customers (12%) were both aware of the price rise and able to identify that it was inflation-linked with an additional percentage.
Ofcom found that, even when people do consider future inflation-linked price rises when choosing a contract, they often do not understand them fully and find it difficult to estimate what the impact could be on their payments.