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Customers on "poor value" out-of-date tariffs, who are paying a higher rate than their supplier's cheapest standard tariff, will be switched to the cheaper rate.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  • Expensive, out-of-date "dead tariffs" will be banned, with customers switched to their supplier's cheapest standard tariff.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'Out-of-date'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
    +3

    Comment number 75.

    "But the real test will be whether people actually see smaller bills"

    This is what matters NOT the number of tariffs. This may well have no impact on the price we pay and will be another pointless exercise.

    BTW why arent the fuel suppliers being tackled over petrol prices as wholesale costs have dropped significantly. Prices should have dropped 10p. This WOULD boost the economy.

  • rate this
    +5

    Comment number 74.

    For those interested in a co-op.

    http://www.cooperativeenergy.coop/

    Go for it and upset the major utitlities.

  • rate this
    +5

    Comment number 73.

    Can you believe anything that this incompetent dithering coalition tells us, we are being ripped off by the energy companies, Cameron does not care about the normal man or woman in the street or the pensioners,disabled and sick, this is proof that Privatisation was wrong, Energy should be nationalised.

  • rate this
    +1

    Comment number 72.

    I contacted EDF to renew my fixed deal a few weeks ago before their they increased their energy prices so avoided the price increase. The nice man said that they had to tell the customer of any cheaper deals available with EDF's competitors. He reeled off about half a dozen deals and left me to make the choice. That seems to be more than fair. Why do we need to go beyond this process?

  • rate this
    +152

    Comment number 71.

    Privitisation didn't work - time to re-nationalise it - so we can have control and just have a single cheapest tariff, and the profits can just go back to the people

  • rate this
    +11

    Comment number 70.

    Gas prices are in the hands of the gamblers who can make fortunes speculating on them. The UK is more vulnerable than most to the resulting volatile market because we have so little storage capacity , a matter of a few days supply. The govt should fund a much increased storage faciltiy and release supplies at appropriate times to smooth out price fluctuations., taking pricing away from the spivs .

  • rate this
    -60

    Comment number 69.

    why is everyone so ignorant to simply ignore that wholesale prices of energy have risen, and therefore our prices have risen! Nationalising the companies will just make the market inefficient and we will still have to pay, just split over the bill and our taxes. Labour talk about uncompetitive, well lets hear some suggestions as to making the market more competitive? 6 companies is no monopoly!

  • rate this
    +7

    Comment number 68.

    Of course energy companies and the Con/Libs will 'help' the consumer - they will still take their profits by one means or another - smoke and mirrors they really should be magicians.
    Shame on them all

  • rate this
    +8

    Comment number 67.

    Talking about being a victim of your own succes, we make our houses more energy efficient, making sure that the energy companies will have to spend less on buying energy, but to keep the shareholders happy the price we pay has to go up, same with cars, we drive less, buy more energy efficient cars and what does the goverment do??? raise the fuel prices!!

  • rate this
    0

    Comment number 66.

    On the news this morning they said there were 66 different tariffs. Is that across *all* energy companies? From my experience each company appears to have at least 66 tariffs!

  • rate this
    +8

    Comment number 65.

    This is more coalition deceit and misdirection. The solution is simple: every energy supplier to have only one selling price for their gas & electricity, The consumer can then see who has the cheapest price and select accordingly. Also, abolish contracts. If consumers can change their supplier, at will, without incurring penalty, then this will ensure best price is always offered.

  • rate this
    +16

    Comment number 64.

    Yet another plan from this government that won't do the slightest bit of good but is easy and cheap to implement.The energy companies will simply raise the price of the cheapest tariff so it doesn't cost them a bean.Solving the problem? Price /profit controls; re-nationalisation; restrict the energy companies to selling the energy they make themselves rather than blaming world markets for prices.

  • rate this
    +29

    Comment number 63.

    It is clear that that nationalisation is the only possible way of making household energy prices fair. Is there any particular reason why this avenue isnt investigated. It appears that whenever ex service suppiers to the general public are privatised, the greed monster steps in and takes over. This is a lesson in history in which our government hasn't learnt

  • rate this
    +11

    Comment number 62.

    Beggars me how you can charge 4 different prices for the same service.

    It would of Been a lot easier had the energy companies been in the nation's hands and not sold off for a quick few quid. We are paying now for that mistake.

  • rate this
    +4

    Comment number 61.

    There are a number of flaws with the current pricing of energy (green energy tax, quick to rise/slow to fall prices against crude oil, etc), but my biggest concern is for those on pre-pay meters. Usually the only payment method available to those on the lowest incomes, these are the most expensive!
    They require the most maintainence, but why should the user, not the company, bare this cost?

  • rate this
    -78

    Comment number 60.

    Energy is too cheap. It does not encourage low usage. Look at the number of TVs in homes. Why do you need more than 1. Energy usage per person in the UK has risen massively. We need to increase the price to force people to use less. Those on benefits and low income should have a free allocation of a set number of units. Those earning above national average should pay a higher amount per unit.

  • rate this
    +5

    Comment number 59.

    Putting you on the lowest tariff doesnt necessarily mean it will be 'cheaper'. If all energy companies do this there is still the opportunity to fix the prices, so we could still end up paying even more.

    I agree the charging needs to be more simplified, so this is good. But its the price/unit etc thats the problem, cant see a forced reduction there!

  • rate this
    +7

    Comment number 58.

    Bit like locking the stable door after Maggie let the horse bolt.

  • rate this
    +4

    Comment number 57.

    How many you complaining voted for Thatcher in the Eighties because you wanted a tax cut paid for by selling off state assets?

  • rate this
    +34

    Comment number 56.

    I'm sick of these fat tycoons leaching money from people for necessities. We need to have heat and light, its not an option!

    What's the betting that the lowest tariff they come up with is higher than any available right now?

    Yes, I'm cynical, because I've learned that money flows one way in this country...

 

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