Ed Davey announces 'four core tariff' plan

 

Ed Davey: ''Energy companies are hiding behind very complex, confusing, multiple tariffs"

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Energy companies will be able to offer only four tariffs each for gas and electricity under government plans to get customers a better deal on energy.

The government says it wants customers placed on the cheapest available price by summer 2014 at the latest.

However, ministers admitted they could not guarantee all households would see their energy bills cut.

Business and consumer groups warned the plans could mean some of the cheapest tariffs on offer disappear.

Labour welcomed plans to make tariffs simpler, but said the government also needed to reform the energy market and create a new watchdog to force companies to pass on price cuts.

The proposals, which are expected to be included in the forthcoming Energy Bill, have been put out for consultation until January.

'Bamboozled '

They include forcing energy firms to offer just four core tariffs for both gas and electricity - a fixed price for a fixed term and a standard variable rate, with two others based on different criteria such as payment method or whether renewable energy was a factor.

Energy suppliers would have to offer one price for each of the four tariffs, although they could still have discounts for dual fuel or lower cost payment methods such as direct debit.

Customers on "poor value" out-of-date tariffs, who are paying a higher rate than their supplier's cheapest standard tariff, will be switched to the cheaper rate.

Government plans to simplify energy tariffs

  • Energy companies will be able to offer only four tariffs for both gas and electricity.
  • These must include a variable rate deal and one with a fixed rate over a certain period of time.
  • The remaining two can be chosen by the energy supplier and may include a green tariff or similar, whatever the supplier thinks is competitive.
  • Suppliers must offer just one price for each of the four tariffs.
  • Expensive, out-of-date "dead tariffs" will be banned, with customers switched to their supplier's cheapest standard tariff.

Energy Secretary Ed Davey said households will be given personalised information from their supplier on their bills about the cheapest tariff the supplier offers for their payment method and the cheapest tariff overall.

'Out-of-date'

Mr Davey told BBC News he couldn't guarantee all customers would see their bills cut, but the majority of people would benefit and it would be "easier" to get lower bills.

Addressing MPs later, Mr Davey said a lot of people were on out-of-date tariffs and "bringing them down is going to save some of those people, indeed some of the most vulnerable, money and that is the right thing to do".

The move would boost customer switching, he added: "Because there will be fewer tariffs and they will be simpler, it will make it a lot easier for people to compare and will actually help competition."

The government said it was building on recent proposals by the energy regulator Ofgem, which has been looking into pricing for some time.

Ofgem welcomed the move and said the proposals "will put an end to consumers being bamboozled by complex tariffs and deliver choice that consumers easily understand".

Currently most people buy their gas and electricity from just six big suppliers, although there are smaller suppliers, amid a vast selection of tariffs.

Renewable targets

The structure of the charges can vary depending on payment method (by direct debit, pre-payment meter, or credit transfer such as cheque), on whether it is an internet-only tariff, which part of the country the customer lives in, if the deal involves a fixed price, when the deal was launched, how long it lasts, and so on.

Christine McGourty, Energy UK: "Companies have already taken steps to simplify tariffs"

Business and consumer groups warned the plans could mean energy users paying more.

Adam Scorer, director of policy at Consumer Focus, said it was a "sensible move" but there was "a risk of unintended consequences and in particular a general levelling up of prices".

And the Institute of Directors said restricting choice would simply allow energy companies to increase their lowest tariff, ensuring a higher minimum price for consumers.

"Instead, the government should be promoting competition and making it easier for new companies to enter the energy market."

Angela Knight, chief executive of Energy UK, which represents the major suppliers, said any fall in energy bills could be limited because about half a bill is made up of costs other than energy - such as upgrading infrastructure, insulating homes and environmental levies.

Shadow climate change secretary Caroline Flint said: "The cheapest energy deal in an uncompetitive market will still not be a good deal. Unless the government really reforms the energy market, there's nothing to stop the energy companies just putting up the prices of all their tariffs.

"The time has come for a complete overhaul of our energy market."

Gas and electricity prices changes
 

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  • rate this
    +5

    Comment number 55.

    Energy companys will circumvent rules to maximise benefits to themselves , just as MPS STILL do when flipping homes & claiming for 2nd homes.

    What went on before, is just continueing, MPs blaming the rules for their continued IMORAL THIEVERY of taxpayers money.

    But hey, there are now so many important subjcts/issues, MPs can just quietly toddle along & claim the max again, as before.

  • rate this
    +9

    Comment number 54.

    When the Tories sold off the 'Family Silver' in the 80s & 90s in order to finance their usual policies of 'Tax Cuts for the Rich', it was an absolute disgrace & they didn't even bother to get good prices!

    Their familiar mantra of 'Privatisation is Always Best for Customers' has been repeatedly disproven but they still won't accept it.

    The current cartel of UK Energy Suppliers are just parasites!

  • rate this
    +104

    Comment number 53.

    If the market is crooked why doesn't the government, like it is proposing with the banks, set up a state owned energy company. Offering energy at a modest profit, competing with private utilities and discouraging them from inflating their margins too far beyond the state owned level.

    If government exists to act on behalf of its people then this would appear to be a reasonable course of action.

  • rate this
    +1

    Comment number 52.

    Rather than nationalise the energy market, the UK should continue to allow companies to supply gas and electricity but force them to buy ALL their energy from a nationalised, government "wholesale pot" - this would allow greater transparency as wholesale prices can be fixed. Companies should also have a CAP on the max profits they can make the same as NI regulators do...

  • rate this
    +1

    Comment number 51.

    Can I add that they should end the contract racket in all consumer markets starting with gas and electricity, then mobile phones and so on through the whole shoddy business. At the moment when you find out you're being ripped off you quickly discover you're in a contract and can't move. By the time the contract ends you've forgotten about moving and the whole shabby rip-off starts over again.

  • rate this
    +2

    Comment number 50.

    When, if, this four tariff proposal actually happens, and everyone has to be automatically put on the cheapest suitable tariff, then the cost is likely to be around the average of current tariffs, so all of us who have sought out the currently cheapest deals will end up paying a few hundred quid a year more. Thanks Dave, I really appreciate your populist meddling.

  • rate this
    +6

    Comment number 49.

    If Dozy Dave really has any power/influence over the energy companies, why didn't he use it to stop the (way above inflation) price rises this Winter?

    Tinkering about with tariffs is little more than a joke. You are fooling no one Dozy Dave. Go now and take the loathesome occupant of No. 11 with you.

  • rate this
    +6

    Comment number 48.

    I agree re-nationalise, and then simplify the billing like it used to be , you consumed x units @ y pence = total.

  • rate this
    +1

    Comment number 47.

    It would help if the enegy firms price in the units we use, ie gas is cubic meters. rather than kwh and get rid of the standing charge

  • rate this
    +3

    Comment number 46.

    now there wont be any cheap tariffs as they will abolish them all there will now be dear dearer and dearer still

  • rate this
    +1

    Comment number 45.

    Typical Labour - in power for over a decade, didn't do anything about the uncompetitive energy markets themselves, but still criticise the current governments plans as "not far enough". You had your chance, complaining about actual action just makes you look even worse.

  • rate this
    +4

    Comment number 44.

    We have to pay for energy but at least if this cuts out the confusion of some of the deals it's got to be an improvement. I only hope that bills themselves aren't kept so confusing as to KW units and hours etc as they are now because I can't make head nor tail of them and I don't class myself as stupid.The transparancy and clarity needs to be accessible to the people not just the companies

  • rate this
    +2

    Comment number 43.

    Really whats the point price fixing is price fixing regardless of how many tarrifs there are

  • rate this
    +4

    Comment number 42.

    Lowest tariff?. . . . So, does this mean they will all sit round a table and come to the conclusion that the lowest tariff they have is scrapped and we pay 'top dollar' whoever we get our energy from?

  • rate this
    +4

    Comment number 41.

    I was not educated at one of Britain's "Top" schools, but it is obvious to me that the "lowest" rate will rise to keep profits up ! Perhaps VAT should be abolished, or reduced. This would prevent a "double whammy" when the companies increase prices !

  • rate this
    +5

    Comment number 40.

    Poor challenge by the BBC to Angela Knight - the Energy CEO who was the spokesperson for the British Bankers Association when they justified their profits and prices . Heard her same arguments about low margins and high investments used to justify the idea that bank customers were receiving an excellent deal, she uses for today's energy cartel- look where we ended up with the banks?!?

  • rate this
    0

    Comment number 39.

    The government should fix prices and there should be a committee drawn from consumers who are otherwise not connected with government, fuel companies or interest group. Nah, that won't work either.

  • rate this
    +4

    Comment number 38.

    Can market forces (a la Adam Smith) work in something like the present energy market? It's a product we must have. Sellers get the product from the same source, more or less. Sellers can't enhance the product (perfumed gas, anybody?). Doesn't it force a cartel (obfuscated via complex tarrifs, for instance)?

  • rate this
    +20

    Comment number 37.

    What will this achieve, all the ok deals will just go no real winners.
    We need to know how EDF rises in France are limited to 2% by the French Govt and here they can make up the difference and charge 10% why can not our Govt limit rises?
    How about telling us exactly how the bills are made up, profit, overheads, wholesale price, a breakdown of green charges and costs.

    Its called transparency.

  • rate this
    +56

    Comment number 36.

    If the government has to intervene in this industry can we safely say privatisation has failed here?

    If they were competing properly to begin with the govt wouldnt have had to force their hand. As soon as you privatise an industry their first concern is profit - not serving a need.

 

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