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Customers on "poor value" out-of-date tariffs, who are paying a higher rate than their supplier's cheapest standard tariff, will be switched to the cheaper rate.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  • Expensive, out-of-date "dead tariffs" will be banned, with customers switched to their supplier's cheapest standard tariff.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'Out-of-date'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
    0

    Comment number 975.

    Some suggest a nationalised company to beat the excessive profiteering etc. Next best thing is a co-operative based company where members interests are put first. Do yourselves a favour and make the big six suffer take a look at Co-op energy; http://www.cooperativeenergy.coop/category/our-news/
    Not only do you get a fair price but you also get to share any profits. It's in your hands - act today.

  • rate this
    +1

    Comment number 974.

    You can not get the best tariff because you wind up getting Cancellation fees and or Prices fixed at % premium against standard tariff and the there is the price hikes
    To get the best price you would need to change supplier every month or so but Cancellation fees make not worth while to do so
    Prices fixed at % premium against standard tariff and the price fall it is never more than the % fix

  • rate this
    +1

    Comment number 973.

    965. inqa
    Government is not a company any more than a Mafia is.

    I agree many businesses suffer private losses, that's how it should stay. Risk is what drives a free market competition, socialising losses destroys it.

    Eg: Moral hazard. If you're a large bank u can lend as riskily as u like, the Govt Mafia will bail you out with other people's money. Like a kid with daddy's credit card!

  • rate this
    0

    Comment number 972.

    945.Bastiat

    I'm sorry to have to tell you free markets only work in theory. Unless of course, you want total freedom to move all elements around the globe, including people, at a whim. That would please infrastructure planners!Your idea would just drive down standards, pay, conditions and is a recipe for disaster.

  • rate this
    +4

    Comment number 971.

    I don't believe what I've just seen. On BBC News, Caroline Flint has just stated that she welcomes the initiative to simplify the pricing structure.

    Caroline - whose side are you on??

  • rate this
    -2

    Comment number 970.

    The BBC presentation is misleading, as it is not the percentage price change that is important, it is the final price that matters.
    Consumers do have the power to change the suppliers behaviour, if they act as one.
    Select the company with the highest prices and boycott them on mass. The remaining companies will panic not to be next. Simplified tariffs should make this an easier tactic.

  • rate this
    +2

    Comment number 969.

    @bastiat..what you seem to wish for is almost a utopian dreamland ..along the lines of a communist state..and look at what happens to those..Energy like water and food are staples of human survival..and should not be in the hands of people who wish to turn a profit from it..but with your rabid profit driven ideas i dont suppose you would agree !!

  • Comment number 968.

    All this user's posts have been removed.Why?

  • rate this
    +1

    Comment number 967.

    It's almost as though 'politicians' are not really representing us against large corporations that they may have connections with.

    Surely not.

  • rate this
    -2

    Comment number 966.

    If Govt gets involved, admittedly with the best of intentions, the price always goes up.

    We need less Govt interference: No wage controls. No corporate taxes. No restrictions on land use beyond tort law. No subsidies or protective tariffs. These are all costs that affect the price of production, and are obviously passed onto the consumer, us.

    Get out of it Westminster :P

  • rate this
    0

    Comment number 965.

    @957.Bastiat: If you think Government Inc. is bad at managing money, you should check out how many other firms go backrupt every day. And they don't all have 60 million shareholders to keep happy.

  • rate this
    +1

    Comment number 964.

    Are we talking,almost like Credit card APR%?
    The less money you have the more you pay???
    Even though its pre paid?
    This should not happen...
    Its all,well Massively VAGUE... In other words,if you have money its cheaper and they are Banking on you more because of this,whilst the poorest get Stamped on.

  • rate this
    0

    Comment number 963.

    Energy bills are only going one way (unless shale oil gets the go ahead). The government's new ECO scheme will add another £50 to the average dual fuel customer's annual bill. Somebody has to pay for a new infrastructure and upgrading the housing stock of those people who can't afford to pay themselves - and we pay this as a levy on all of our bills, which is also only going one way...

  • rate this
    +4

    Comment number 962.

    Predictions: All prices continue to rise not fall. All rises timed for winter. All suppliers change prices in tandem. All suppliers make vast profits. And the latest wheeze - if maintain per unit costs (over which we have control) hike the daily charge (over which we have no control). There's only one winner in this game, and it's not the consumer...

  • rate this
    +5

    Comment number 961.

    Do they take into account the customers , like myself, on pre-paid meters ?
    Didn't think so .

  • rate this
    +6

    Comment number 960.

    There is no evidence that customers want choice of supplier, the opposite is the case. There is no justification for more than one tariff, which should be mandated by Ofgem. Energy companies still would then compete via lower costs and more supply, not by exploting consumers...

  • rate this
    +2

    Comment number 959.

    As many have posted that will be set unfairly.Does this only apply to DD payments?
    What i mean is,what about people that pay by Gas/Electric card.People who have to pay by this method seem to pay more.Will this change???

  • rate this
    +7

    Comment number 958.

    It's great that the energy cartels will be able to give me just the one rip-off suggestion, rather than me having to chose from a selection of rip-offs.

    I'm so busy being ripped-off elsewhere these days that this will save a lot of time.

  • rate this
    +1

    Comment number 957.

    If price fixing and tariffs have never ever ever worked in the past... why are we repeating them today?

    Can someone please explain to me how the boffins in Westminster, or any central planner, could possibly know what the "actual", not "fair", cost of any product actually should be. Aren't these the same boffins who operated the Olympics at 3 x promised budget? Are we insane?

  • rate this
    +5

    Comment number 956.

    Horse bolted 30 years ago with the family silver.

 

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