Telecoms watchdog Ofcom has been urged to combat the broadband ‘loyalty penalty’ for customers who stay with a single provider.

According to Citizens Advice, one in seven customers pay extra for their services across the broadband, mobile and mortgages markets for not switching providers.

The group analysed 165,000 budgets of people who came to it for debt help and found those with the lowest incomes spend almost double the proportion of their income on telecoms than the highest earners.

In addition, 41% who are paying the loyalty penalty, the group found, say they have struggled to sleep due to their finances. In addition, 28% have already cut back on everyday essentials such as food and energy, and 65% are worried about keeping up with their bills.

For broadband providers, the cost to a customer of staying loyal to a provider was calculated by Citizens Advice as being £61 per year. This affects around 7m people in the UK. Mobile customers lose £83 per year for loyalty, with 1.5m paying extra.

And for mortgages, the average cost to customers staying with their provider is £1,000 per year, with 630,000 affected.

Citizens Advice previously submitted a super complaint on the loyalty penalty back in September 2018, targeting the mobile, broadband, home insurance, mortgages and savings markets.

By 2020, the sectors’ regulators had found a combined loyalty penalty of £3.4 billion every year.

In January 2022, the Financial Conduct Authority (FCA) essentially abolished the loyalty penalty for car and home insurance and paused investigating the cash savings market.

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However, Citizens Advice has warned that little meaningful action has been taken in the three other markets. Regulators found annual loyalty penalties of £800 million for mortgage holders, £451 million for broadband customers, and £83 million for mobile customers paying a bundled contract including a handset.

Since the complaint was made, the only action from Ofcom was extracting voluntary commitments from some companies in the broadband and mobile sectors.

Dame Clare Moriarty, Chief Executive of Citizens Advice, said: “The government did the right thing by strengthening its cost-of-living help, but finally fixing the loyalty penalty could put more than twice as much money back in some people’s pockets as the £400 October energy grant.

“As we all pull together to weather the cost-of-living crisis, it’s incredibly frustrating to see there are still firms out there that prefer to help themselves than help the people who’re most in need.

“The time for piecemeal pledges has passed. Regulators must tackle the loyalty penalty across these three markets – no more excuses, no more delays.”

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