Will the coalition’s energy plan really mean lower bills?

  • @martin_hickman

Energy firms will be forced to switch all customers onto the cheapest tariffs, saving people from languishing on expensive, out-of-date deals, Ed Davey, the Secretary of State for Energy, announced today.

Confirming the proposal floated by the Prime Minister in the House of Commons last month, Mr Davey said suppliers would be required to move bill-payers to the least expensive fixed price or variable.

They would also be required to offer just four core tariffs for gas or electricity, instead of the hundreds currently on the market.

“For too long people have been stuck on the wrong type of energy tariff, paying more than they need to,” Mr Davey said.

“Our new proposals will make things much clearer and easier to understand, so that bill payers can get the best deal and feel the benefit in their pockets.”

Consumer groups welcomed the deal - but warned that some people could end up paying more.

Q Why is the Government acting?

In the past two months most of the Big Six suppliers have hiked prices and the average annual dual fuel bill is at a record high - £1,334. Suppliers have been accused of befuddling the public. The Department of Energy and Climate Change (DECC) says there are 410 tariffs on the market and 650 “dead” tariffs which customers are on, but which are no longer offered to the market.

Q What is it doing?

Plans to force firms to simplify tariffs and switch customers to the cheapest applicable tariff will be written into the forthcoming Energy Bill.

Q How would it work?

Suppliers would be allowed no more than four ‘core tariffs’ for gas or electricity. One of those tariffs would have to be variable – changing in line with wholesale costs – while one would have to be fixed priced, fixed time. Suppliers would be obliged to offer to move all customers onto the cheapest deal for their preference of fixed or variable.

Q What are the benefits?

Millions of customers will pay less. The most expensive quarterly standard payments are up to £300 more than the cheapest internet tariffs. Within the same payment method, customers could save an average of £72 and a maximum of £158 a year.  The price people pay for lighting, heat and power will become more equal.

Q What are the drawbacks?

Energy companies will not be able to afford to offer everyone the very cheapest deals available now, so will have to remove or raise the price of those deals, meaning that some customers will pay more under the new system.

Q. Will I still be able to buy green energy?

Yes. The four-tariff limit should mean that renewable energy is still available.

Q. When will my bill change?

By summer 2014 at the latest, according to the Government.

Q. What else can be done?

Consumer groups want an inquiry to see if suppliers are ripping off customers. Which? warned there was “a worrying lack of transparency in the energy market.”

Richard Lloyd, its executive director, said: “We have seen inflation-busting energy bill hikes at the same time as large profit announcements from energy suppliers, so people will rightly be questioning whether they’re paying a fair price for their energy.

“We are repeating our call for the Government to launch an urgent and swift independent review in to what’s really behind the rising cost of energy.”

Shadow energy secretary Caroline Flint said: “All the Government is really doing is reducing the number of tariffs on offer. If energy companies are only allowed to offer one tariff for every type of contract, that’s not the lowest tariff - it’s the only tariff.

“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.”