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Customers on "poor value" out-of-date tariffs, who are paying a higher rate than their supplier's cheapest standard tariff, will be switched to the cheaper rate.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  • Expensive, out-of-date "dead tariffs" will be banned, with customers switched to their supplier's cheapest standard tariff.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'Out-of-date'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
    +1

    Comment number 475.

    @462. stereotonic

    I certainly don't expect to get anything 'for nothing' and I never have. I've worked very hard as have many others, so I just expect to pay a fair price (whatever that may be), and to pay exactly the same as anybody else....be it energy, bread or anything else, to say I have more money so I must pay more is the kind of thing I would expect from China or Russia...not the UK.

  • rate this
    +1

    Comment number 474.

    @463Bigry

    This is about energy . . . . . . and I'd stake my life on the fact thats what he/she was referring to. It's got NOTHING to do with the price of a loaf of bread! Silly!

  • rate this
    +8

    Comment number 473.

    EDF the hugely profitable French Utility Company is 85% state owned.

    Our government has no problem with state ownership as long as it's someone else's state.

  • rate this
    +22

    Comment number 472.

    Agree that there are too many tariffs and it can be somewhat confusing to work out the cheapest deal but regardless of what the Government does to help people with this, it won't mean lower prices.

    Rapidly growing population consuming more and more dwindling resources mean prices will continue to rise. Its the simple law of supply and demand and THIS is the real issue that so many people ignore

  • rate this
    +8

    Comment number 471.

    The cheaper tariffs available by switching suppliers are subsidised by those on standard tariffs who do not switch. If we all switched the cheaper tariffs would be unsustainable at current levels; if suppliers were forced to offer everybody the "cheapest" tariff there couldn't be any tariiff as cheap as those available now by continually switching suppliers.

  • rate this
    +18

    Comment number 470.

    We pay for our gas/electricity on pre paid meters and owe not one penny to anyone. Yet pre paid rates cost more than others. Will pre paid rates be bought into line with others? Why should I pay more for the same usage as my neighbour?. Its time those of us who buy energy in advance were stopped being penalized.

  • rate this
    +4

    Comment number 469.

    So forcing companies to put people on the lowest tarrif will solve everything then? Apart from raising the lowest tarrif anyway to make sure we are all paying as much as possible and then increasing the cost by 10% every 6 months . You wont beat these companies this is an essential service that can hold us all to ransom and the governement lackies can do nothing about it.

  • rate this
    +3

    Comment number 468.

    Of course the energy companies are willing to co-operate with this, it's a continuation of the freedom to charge what they want. They'll just make their lowest tariff the highest price that they want, and the other tariffs even higher. How do we know the lowest price really is going to be the lowest price? Do you really think they'll give us something for less than they can get for it?

  • rate this
    +1

    Comment number 467.

    "435.BareBodkin
    246.RobinTheBoyWonder
    "People keep clamouring to have the utilities, railways etc re-nationalised, and expect this to solve all of the problems."
    -
    We were promised competition but we got cartel.
    We were promised regulation but we got a damp squibb."
    ////
    No argument from me on the broken promises.
    My point is that re-nationlisation will be vulnerable to the same abuses.

  • rate this
    +1

    Comment number 466.

    434.Khuli
    4 Minutes ago
    292.paul
    After all is said and done we pay 20% VAT on our energy bills
    ----------
    If you think you pay 20% VAT on gas/electricity
    then you clearly don't bother looking at your bills.
    ====
    I said this to another poster, Mods pulled my comment??

    ==
    433.pique
    4 Minutes ago
    1 unit of energy = 1p
    2 units of energy = 2p
    etc

    You need to re-think this??

  • rate this
    +5

    Comment number 465.

    411.Florian Ritzmann
    Telling people that engaging in the market is difficult is not what the Tories are about.

    True - what the tories are about is putting business needs first, before the needs of the electorate. This may be a cynical move to do just that - forcing a low terriff option in the knowledge that the lowest price will actually rise as a result.

  • rate this
    +37

    Comment number 464.

    I used to work in the industry and this is so frustrating. Masqueraded as a fantastic new bit of legislation that will ensure everybody is paying the bare minimumm for their electricity and gas, controlling the big 6 energy suppliers.

    In reality the average price will simply rise - benefitting those on the highest current tarrifs, hitting hardest the savvy consumers who look for the best deals

  • rate this
    -1

    Comment number 463.

    @60. I know nothing

    So on your thinking, a wealthier person should pay £1.50 for a loaf of bread and somebody with less money should pay £1.

    What world are you living in....I agree that the 'very' wealthy should pay slightly more in tax (not a large percentage more), but to honestly think that the wealthy should pay more for an item is just plain stupid.

  • rate this
    -1

    Comment number 462.

    @60 I know nothing

    I totally agree with you and cannot understand why you have been so downrated. It's a really good idea all round.

    Your comment makes everyone else on here who's down rated you look like 'greedy I want something for nothing' irks, which is one of the reasons the country is in the state it's in!

  • rate this
    +14

    Comment number 461.

    So Angela Knight, chief executive of Energy UK, complains that, "about half a bill is made up of costs other than energy - such as upgrading infrastructure, insulating homes and environmental levies."

    Newsflash Angela, WE DONT CARE. Pay for these out of your massive profits before you start increasing our prices.

  • rate this
    +6

    Comment number 460.

    Only one thing to say on this - look at the obscene profits of British Gas and then tell me the energy markets don't need sorting out!

  • rate this
    -4

    Comment number 459.

    So the Government taxes the hell out of companies.
    Then they tell them (regulate) what they can & can't sell (Renewable targets).
    Now they want to tell them what they can charge for a product?

    The more Government interferes the worse things get. Next we'll have higher prices, Government will subsidise the costs of the problem they created. Then full nationalisation. Then costs will explode :(

  • rate this
    +1

    Comment number 458.

    It will be great to see the same 4 tariffs applied to all the suppliers then we will really see who is cheaper. All we need is the OFT to take action if by some miracle all the tariffs for all suppliers come out at the same amount.

    Interesting to see Angela Knight's comments - she was the British Bankers' Association chief exec and apologist for many years - nuff said.

  • rate this
    0

    Comment number 457.

    Interesting chart. So gas prices a third lower than 2009, are prices lower? Nope.

    http://ycharts.com/indicators/europe_natural_gas_price. So how the hell can the utlity companies charge more. Switch to the Co-op.
    430.zzgrark
    According to Centrica, BG (retail unit) had profit margins of 7.2% for the first six months of the year.
    http://www.bbc.co.uk/news/business-18997416

  • rate this
    0

    Comment number 456.

    Well I have studied the Venus project and the Zeitgeist movement for their ideas on renewable energy and how 'everyone' would be able to have heating and there would be nobody dying from the cold in the winter..but I don't see any of these ideas from the government doing that.

 

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