Broadband Consumers Brace for Massive 2023 UK Price Hikes

As if 2022 wasn’t already devastating enough for the UK cost-of-living, the annual price hikes season is about to hit again for customers of the largest broadband ISPs and mobile operators, which for the second year running is expected to be driven by another huge increase in inflation. Expect hikes of around 14% or more.

Just to recap. Many of the country’s biggest telecoms providers partly base their annual price rises off inflation figures – the Consumer Price Index (CPI) or Retail Price Index (RPI) – as published in December or January each year, which tends to then be introduced to consumer bills between March and April of that same year. As a result of this, we can often predict how big the impact will be before it’s formally confirmed.

Annual price hikes are of course nothing new in this and other markets. Often there are legitimate reasons for prices to go up, not least because ISPs are frequently adding all sorts of new services (e.g. FTTP), developing new systems, facing higher charges from suppliers, implementing costly new Ofcom rules and consumers are gobbling significantly more data every year.

However, until recently it was fairly common for the biggest providers to raise their prices by around 4% to 6% every year, but 2022 was different – partly due to the rapid return to normal economic activity post-COVID-19 and the earth-shattering cost of energy that has driven a surge in inflation. The result saw December 2021’s CPI rate hit 5.4% (up from 0.6% a year earlier) and RPI reach 7.5% (up from 1.2%).

Nearly all of the major ISPs typically inform customers that they will increase prices by a set rate of 3.9% each year (3.7% on Talk Talk and ‘up to’ 3% on ShellEnergy) + the CPI rate of inflation as published in January. As a result, most consumers found themselves being hit by average annual price hikes totalling around 9-10% at the start of 2022 – roughly double the 2021 hike.

What will happen in 2023?

Sadly, inflation has continued to spiral upwards for a second year, which recently saw the CPI and RPI rates for November 2022 reach 10.7% and 14% respectively. A number of long-term forecasts suggest that the period we’re in now will most likely see inflation reach its peak (i.e. most mobile and broadband providers will be setting their prices for the coming year based on this), before dropping off as 2023 progresses.

Indeed, there’s already some evidence of this, with the latest CPI rate of 10.7% being down from 11.1% in October (RPI also fell to 14% from 14.2% over the same period). But there are still plenty of unknowns, not least with respect to the wider impacts on future gas supplies next winter and the government’s move to scale-back the current protection against energy price rises.

Overall this suggests that next month’s CPI rate, which is most relevant to the price hikes mentioned below, will probably remain a little bit over 10%. In short, consumers should expect annual price rises of around 14-15% this year, which will probably look a little something like this:

Predicted 2023 Price Hikes for UK Telecoms Providers

BT 10% CPI + 3.9% = 13.9% Price rise

EE 10% CPI + 3.9% = 13.9% Price rise

Plusnet 10% CPI + 3.9% = 13.9% Price rise

Vodafone 10% CPI + 3.9% = 13.9% Price rise

O2 14% RPI + 3.9% = 17.9% Price rise

TalkTalk 10% CPI + 3.7% = 13.7% Price rise

Shell Energy 10% CPI + 3% = 13% Price rise

Virgin Mobile 14% RPI + 3.9% = 17.9% Price rise

Three UK 10% CPI + 3.9% = 13.9% Price rise

The reason why providers use this ‘Inflation + 3.9%‘ style approach is because it enables them to include future price increases into your package agreement (terms), which in turn means you have a degree of transparency about future changes and thus will not be able to exit your contract early without paying an early termination charge (i.e. Ofcom’s rule against mid-contract price hikes does not apply).

We should point out that Virgin Media’s fixed broadband service has tended to shun this approach by continuing with their policy of more modest fixed annual increase (here). Sky UK (Sky Broadband and NOW TV / Broadband) usually do something similar (we are expecting Virgin to change this). Neither approach is directly linked to inflation, and customers gain the right to cancel without penalty. As such, the average increase for customers of Sky and Virgin is often less aggressive.

Meanwhile, smaller providers like KCOM, Gigaclear, Hyperoptic and many others chose to take the high ground by freezing prices for 2022, although it’s possible that some of them may follow that in 2023 with a much larger increase (it’s still too early to say for sure). In any case, all providers are required to give customers at least 30 days’ notice of any price increases.

Alternatives

Customers of the aforementioned list of providers, once formally notified of the increase, could alternatively try haggling for a lower price when the hike hits (Retentions – Tips for Cutting Your Broadband Bill), although your mileage may vary. Failing that, sometimes the only way to save money is to switch to a different supplier, although today’s market is so complex that it can be difficult to figure out what your options are.

Meanwhile, those who are on benefits (Universal Credit etc.) may also have the option of taking a cheaper Social Tariff, which is another way to cut your costs – see our article on this: A Quick Guide to UK Social Tariffs – Getting Broadband for £15.

We should point out that all of these hikes are occurring even after Ofcom directly warned UK telecoms providers to “consider whether large price rises can be justified at time of exceptional financial hardship” (here). The regulator stopped short of making a more significant market intervention, but the ASA (advertising watchdog) are considering new guidance that could require information about mid-contract prices hikes to be more prominently stated in future ads (here).

One final point to make is that there may be good news on the horizon. Most forecasts suggest that the current surging level of inflation may only be temporary. Some models (examples here and here) suggest that inflation is already at about its peak (c. 11%) and will fall back to around 5-7% later next year, followed by around 2% in 2024. We can only hope they’re right, but a lot of unknowns remain.