Fuel bill cuts will follow energy policy change

 
pensioner has cup of tea by the fire Most energy providers have said they will pass on the savings generated

Major energy firms have started to announce plans to pass on savings to customers following a new package of measures from the government.

British Gas owner Centrica said it would cut bills by £53 in January, two months after a £123 price rise for the average dual-fuel customer.

SSE also said it would pass on savings of around £50 and Npower plans a conditional price freeze until 2015.

The moves come after the government said it would make changes to bills.

Some subsidies for those in fuel poverty will be moved into general taxation and some green policy targets will be slowed down. It said this would cut energy bills by a total of £50 a year for the average household.

Analysis

Energy bills are not going to rise by as much as they would have done, but they still cost a lot.

Today's announcements from the energy companies come after a curious couple of months of political wrangling.

Energy bills have proved to be the platform for a bigger tussle between the parties, over who can sound the most credible at a time when for many people prices are going up faster than wages.

Labour's promise to freeze energy bills for 20 months if it wins the election has been derided by the coalition as a con, which says it won't work.

But the advantage of it, right now, is it is easy to understand.

This is the government attempting to fight back and illustrate its on the side of consumers.

Homebuyers could instead be granted £1,000 to spend on energy-saving measures.

However, overall prices are rising this winter for most energy customers, as the price rises outweigh any cuts that result from these government plans. The cuts will also come at different times, not necessarily at the depth of the winter.

New plans

Major suppliers have been responding to the move, which comes shortly after announcements of inflation-busting winter price rises which angered many customers.

Npower said it would not raise prices any more until spring 2015 unless wholesale costs went up.

The company introduced a planned price rise of 10.4% over the weekend, but it said that would be reduced, once it has worked out how much changes to government policy would save it.

Caroline Flint: "Not a single measure that will cost the energy companies a single penny"

SSE and British Gas said they would pass on the savings - the former by April, and the latter in January.

Meanwhile, EDF has indicated it would not raise prices again before 2015. In November, it announced a 3.9% rise in bills to take effect in January. This was lower than many of its rivals in anticipation of a move by the government.

E.On, which has not announced a price rise yet this winter, said that the government changes would mean prices would not be as high as they could have been.

Scottish Power said it would pass on the cut in full, but added that other factors - such as wholesale costs could still put pressures on bills.

The Energy Minister, Ed Davey, told the BBC the planned moves by the government would save households an average of £50 on fuel bills.

But Labour leader Ed Miliband, in a speech on Monday, is to accuse ministers of using "smoke and mirrors" over its plan. He has pledged a 20-month price freeze if Labour wins the next election.

Changes

Currently, the average dual fuel bill for households is £1,385.

Graphic showing what your gas and electricity bills are paying for with the largest part being the wholesale purchase of energy, supply costs and profits.

Some of the saving will come in the form of a reduction in the Energy Companies Obligation (ECO), which requires energy companies to provide insulation or other energy-saving measures to 400,000 homes a year.

Energy Secretary Ed Davey says the government's policy is a "real help for consumers"

In future, these measures will be paid for by a tax-funded programme of £500m, and will be granted via an average £1,000 stamp duty rebate for home buyers who need to improve energy efficiency at their new property.

The total £50 cut in the average household bill is made up of:

  • A reduction of about £30 to £35 as a result of changes to ECO
  • A rebate of £12 on electricity bills for customers in each of the next two years, owing to changes to the Warm Home Discount
  • A one-off £5 cut in electricity bills by cutting network costs, which represent close to a quarter of a typical bill

Richard Lloyd, executive director of consumer group Which?, said: "It is about time the government started getting the cost of energy under control and this will be a welcome step in the right direction for consumers who are struggling with the increased cost of living.

Paul King from the Green Building Council says the bill reduction is a "really short-sighted move"

"It is right to refocus the Energy Company Obligation so that it gives greater priority to those most in need of help, with lower-cost measures such as loft and cavity wall insulation. But in return for more time to get this right, the suppliers must now commit to greater transparency and to getting their costs down, fast."

Meanwhile, the Environmental Audit Committee of MPs has accused the government of "shifting the goalposts" to reduce the number of households in England classed as in fuel poverty.

 

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  • rate this
    +201

    Comment number 157.

    This is not the energy companies reducing prices, it is the Govt. paying on their behalf. The big 6 have not been reined in at all, if anything, they have been given free range to increase when they want and the Govt. will pick up the tab because politically, they can't afford the damage done to them. They had a chance to lay the foundations for fairness in the market and blew it big time

  • rate this
    -91

    Comment number 96.

    Where do we stop when it comes to a government freezing company prices.
    Freeze the prices, the share price drops and then we start to complain about pensions not paying enough.
    We seem to have this constant attack on any company that dares to make a profit.

  • rate this
    -63

    Comment number 71.

    Moan moan moan moan...

    What is the problem with some of you people. Any gain above zero is better than nothing and better than where you were before.

    What needs to be done now is address the generation/supply issue and reduce the wholesale price.

  • rate this
    +108

    Comment number 59.

    So they are reducing the increase (not cutting) bills by allowing them to contribute even less to the public purse? It'd be more efficient for the govt to give the cash straight to consumers than relying on energy firms to pass on cost decreases.

    This is just stupid moving numbers around to make things look better, no actual benefit to any of us - much like most govt policies.

  • rate this
    +93

    Comment number 1.

    £50 is a measly amount, that won't really help hardworking families, not when the energy companies have just cynically put their bills up, ahead of a predicted hard winter.

 
 

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