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Customers on "poor value" out-of-date tariffs, who are paying a higher rate than their supplier's cheapest standard tariff, will be switched to the cheaper rate.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  • Expensive, out-of-date "dead tariffs" will be banned, with customers switched to their supplier's cheapest standard tariff.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'Out-of-date'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
    +2

    Comment number 935.

    If tarrifs are so convoluted you cannot compare like with like (as none is like another) then you cannot really make an informed decision. If you cannot make an informed decision then the market won't function to bring down prices. So this is a good move. Whether the market functions correctly with so few suppliers is another matter. At least it'll be easier to see what they're up to.

  • rate this
    +2

    Comment number 934.

    The real problem with energy tariffs is that not only are they complex & difficult to understand but the present two band charging method discriminates heavily against low users because the first unit charge is usually 50% to 100% above the second band.

    Reversing and adjusting the band pricing structure would not only help the poor but incentivise high energy users to reduce their consumption.

  • rate this
    -1

    Comment number 933.

    I don't think it's fair that the energy suppliers are forced to put customers on certain tariff's. what if "the best" tariff has cancellation fees? how many customers will come back kicking and screaming about not wanting to pay the fees associated?
    why aren't supermarkets forced to put prices down for food? their profits were MUCH MUCH more than the energy companies.

  • rate this
    +3

    Comment number 932.

    Osbourne champions use of gas because of the lobbyists he listens to and is trying to kill off the bid for green energy besides the alliance of 200 financial institutions wanting more green energy, wonder how much the gas industry bankrolls the Tories, cheaper present tarriffs promise a good deal for the consumer? I think not only what is better for the Tory Party and we will pay for it.

  • rate this
    -2

    Comment number 931.

    @905. Trout
    "We're borrowing much less than the French or Germans to fund their health services and the NHS costs half what the US system costs."
    ~
    As long as we're not as bad as the worst bankrupt in the room we're alright then I guess.

    @911. koolkarmauk
    "Capitalism is doomed"
    -
    Yeah right... how did the industrial revolution happen? Voluntary free markets. Enjoy your can of coke comrade :P

  • rate this
    -2

    Comment number 930.

    I find it astonishing to believe that some people actually want to go back to the dark ages, when utilities were owned by the state.

    Some people may have also forgotten that communism is a failed political concept that did nothing to help consumers.

  • rate this
    +1

    Comment number 929.

    921.WunderfulBBC
    1 Minute ago
    903.tc
    I think you'll find that this is down to the most appalling lack of procurement nous within the NHS, in much the same way as
    (for example) each police force orders its own cars separately.
    +++
    and schools, uni's etc
    Who also then pay 3 to 8 times the market value
    and don't get me started on PFI

  • rate this
    +3

    Comment number 928.

    does this bunch of (half)wits (or any politician for that matter) think we are stupid enough to believe that their posturing will mean we will pay less for utilities.

  • rate this
    +1

    Comment number 927.

    924.roger48

    Only if it's available to all Rog.

  • rate this
    -1

    Comment number 926.

    @917. Bastiat: Interesting! I couldn't even manage solid foods for the first year, and I wasn't able to have a rational conversation for several more - let alone trade as a perfectly informed consumer[tm]. And my education was the result of two or three millennia of civilisation gathering knowledge.

    But if you brought yourself up alone in a cave, bravo. Write a book about it - I'd read!

  • rate this
    +2

    Comment number 925.

    A 4 tarif system is possible:
    1) Standard Variable Rate
    2) 18 month fixed price tariff
    3) capped rate tariff
    4) green tariff

    But why does it have to take another 18 months to implement, it could be done by early spring or even before the year end (reason - profit & a government not actually being able to deliver this)

  • Comment number 924.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +2

    Comment number 923.

    Any set of businesses with as much at stake as the energy companies would be stupid if they engaged in a race to the bottom. More likely after the initial flurry of activity has died down is the gradual "alignment of prices" across the companies. They will all look you in the eye and say there is no cartel.

  • rate this
    +3

    Comment number 922.

    The ONLY realistic way that energy prices will go down long term is if theres a huge population crash, somewhere, or everywhere.

    Earlier this year, ConDems TAXED North sea exploration to death, result, decrease in UK long term energy security. ConDems later, recently reversed their policy & disguised it as a NEW investment incentive when in reality they just gave back what they took away.

  • rate this
    +2

    Comment number 921.

    903.tc

    "We have another example of this today in the NHS when different rates are charged to various health bodies for the SAME medicines"


    I think you'll find that this is down to the most appalling lack of procurement nous within the NHS, in much the same way as (for example) each police force orders its own cars separately.

    Most Companies have a single Procurement Dept and get best price

  • rate this
    +4

    Comment number 920.

    Is there to be one price to be paid by Cameron's friends and another price to be paid by others?
    Will there be a price paid by readers of Murdoch papers and another by the rest of us?
    Will there be a price paid by executives of Murdoch's papers?
    Will red top paper executives pay at all?
    We will soon see where the real power lies...

  • rate this
    +1

    Comment number 919.

    The public have been asking for something to be done about high prices and confusing pricing structure. It's taken a couple of years, but this government have done something about it.
    Labour on the other hand allowed prices to escalate during the Blair / Brown eras, and did abosultely NOTHING to help consumers.

  • rate this
    0

    Comment number 918.

    906.SnoddersB
    "the only way to stop the rip off is for the government to make the markup 10% on the wholesale price and that is that."

    what happens then if companies see no profit in supplying, we all go without? Will another wish buy & take on the supply knowing the restrictions? It poses as many questions as it might close.

  • rate this
    0

    Comment number 917.

    895. Trout Mask Replica

    Okay then. How is it "free" to force what a businessman (in this case an energy company) can sell a product for? Straw-man argument, I think not.

    @894. inqa
    I disagree with ur belief in the social contract. We're born free & independent. The state needs us to exist. Our life, freedom, & property are ours. The state should only protect, not harm these.

  • rate this
    +3

    Comment number 916.

    I'm probably just a cynic, but I believe Cameron's intervention is well meaning but naive. The power companies will only make this change if ultimately they financially benefit - which they will, as they'll make sure that overall prices will rise! The consumer will lose no matter what.

 

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