Energy Secretary 'can't guarantee' all families will save under revised energy tariffs
Ed Davey announced proposals to require energy firms to provide just four tariffs and place all customers on the cheapest price
Tuesday 20 November 2012
Energy Secretary Ed Davey admitted today that he could not guarantee that plans to put people on the cheapest energy tariff would mean all households would see bills reduced.
The Government has announced proposals to require energy firms to provide just four tariffs for each fuel and to place all customers on the cheapest price available for their chosen tariff.
But concerns were immediately raised about the plans, which were first raised in a surprise announcement by Prime Minister David Cameron in the Commons last month that appeared to take the Department for Energy by surprise and plunged energy policy into confusion.
Critics have warned that the proposals, which build on Ofgem's retail market review, could see an end to cheap deals, stop consumers switching suppliers, reduce competition and push up bills in the long run.
The Government move comes amid long-standing concerns that many households are paying hundreds of pounds a year more than is necessary for gas and electricity because of the confusing array of different tariffs.
The issue has become more acute in recent years because of rising wholesale prices that have been passed on to customers.
Of the "Big Six" energy firms, five have recently increased their prices or announced they will be raising them in the next month. German-owned E.ON, the only utility not to have lifted prices, is reportedly planning a double-digit increase next month.
Asked whether people could expect smaller bills as a result of today's announcement, Mr Davey told BBC News Channel: "It will depend.
"I think many people will end up paying less, because this will both make it easier for them to choose what is best for them and I think it will drive competition, and therefore reduce prices.
"I can't guarantee every single person will end up paying less but I think this is a really good deal for people across the country."
Mr Davey said Ofgem was already planning to change companies' licences next year to ensure that the tariff system is simplified.
He added: "What we are proposing in our consultation is that we take powers in the forthcoming Energy Bill to ensure that these changes to licences will actually happen, and happen in a timely fashion."
The Department of Energy and Climate Change (DECC) said there were currently 410 tariffs on the market and 650 "dead" tariffs which existing customers were on, but which were not available to new customers, making it hard to shop around.
At the moment, consumers could save an average of £72 and a maximum of £158 if they switch to the best deal in the market on their payment method, and more if they switch and change payment method, but most people do not shop around.
Under the proposals outlined today, suppliers would be limited to four "core tariffs" per fuel, to end the proliferation of tariffs.
The tariffs would have to include one standard variable rate and one fixed term, fixed price tariff to ensure that those two rates, which account for 85% of customers, are clear, simple and easy to compare between suppliers.
Suppliers would then be allowed to offer two other tariffs, to give choice to customers, such as a green tariff which supports the use of renewables.
The suppliers would be forced 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.
The Government said it wanted all customers placed on the cheapest available price as quickly as possible and by summer 2014 at the latest.
While moves to simplify tariffs were welcomed by campaigners, many raised concerns it would not necessarily lead to lower bills for households.
Adam Scorer, director of policy at Consumer Focus, said the announcement should mark an important step in setting rules that force suppliers to come up with clear and comparable offerings.
But he warned: "There is a risk of unintended consequences and in particular a general levelling-up of prices.
"Ofgem will need to police the behaviour of suppliers and be vigilant about the level of margins that suppliers take from their remaining tariffs. Consumers must not end up as net losers."
Guy Newey, head of energy and environment at centre-right thinktank Policy Exchange, said: "Cutting the number of tariffs and forcing energy companies to put households on the 'best' rate could end cheap deals. This risks punishing families who do the right thing and shop around.
"There is a danger this move could see fewer people switching, reduce competition and therefore push up bills in the long term."
Richard Lloyd, director of consumer body Which?, said today's announcement should mean the Prime Minister's commitment to legislate so energy companies "have to give the lowest tariff to their customers" would become a reality.
But he said there needed to be more effective competition between suppliers and information had to be clearly presented so consumers could compare and switch easily.
He also warned: "There is a worrying lack of transparency in the energy market - we have seen inflation-busting energy bill hikes at the same time as large profit announcements fromenergy suppliers, so people will rightly be questioning whether they're paying a fair price for their energy.
"That's why we are repeating our call for the Government to launch an urgent and swift independent review into what's really behind the rising cost of energy."
Today's announcement comes just days before the Government is expected to publish its long-awaited Energy Bill, which aims to secure the billions of needed investment to replace the UK's ageing power infrastructure with low carbon technology to cut emissions and keep the lights on.
But the coalition has been split over energy policy, with the Lib Dems backing low carbon power sources such as renewables and Chancellor George Osborne leading a new "dash for gas" as a cheap source of future electricity supplies.
Environmentalists have warned that without moving the UK's power sector away from gas to clean forms of energy and driving energy efficiency measures, consumers will remain at the mercy of rising gas prices.
Greenpeace energy campaigner Louise Hutchins said: "The Government can tinker with the tariff system all it likes, but until Britain reduces its reliance on volatile world gas markets, even the cheapest tariff will keep rising.
"If the Prime Minister is really serious about tackling bills, he should stop his Chancellor's dash for gas in the Energy Bill and focus on clean, home-grown renewables and efficiency measures. That's the only way to bring bills down in the long run."
Friends of the Earth's head of policy and campaigns Andrew Pendleton said: "Action to simplify energy tariffs is certainly welcome but if David Cameron really wants to cut bills the thing he should regulate is his gas-guzzling Chancellor.
"If George Osborne's plans for more gas-fired power stations go ahead they will lock the nation into dirty and increasingly expensive fossil fuels for decades."
The uncertainty over future energy policy has prompted a host of business groups, companies, trade unions and environmental groups to warn that investors are being scared away from the UK and demand the Government sets out clear backing for a move to a green economy.
E.ON said its customers could choose from no more than five tariffs, and it had made the rates simpler and more easily comparable.
Tony Cocker, E.ON UK chief executive, said: "In the last three years, around three quarters of our customers have either changed their tariff with us or joined us from another company so it is beyond doubt that the majority of our customers are already choosing what's best for them."
He said being on the right tariff was only one side of the coin, and as well as rising energy costs, other parts of bills such as those which pay for Government social and environmental policies were increasing. He urged ministers to ensure schemes were cost effective and benefited customers.
"We will play our part by continuing to help customers take action to make sure their homes are as energy efficient as possible," he pledged.
Ed Matthew, director of the Energy Bill Revolution, an alliance of businesses, environmental and social campaign groups and trade unions formed to tackle fuel poverty, said: "Simplifying tariffs and moving consumers to the cheapest is a no-brainer.
"But no-one should kid themselves this will bring down energy bills overall. The main benefit is really to make life less confusing for energy consumers.
"The danger is that it distracts attention from the only real, long term solution to high energy bills which is to make every UK home highly energy efficient.
"From next year, the Government will rake in over £2 billion in carbon tax, rising to £4 billion by 2020.
"If this was recycled back to households to make homes super insulated, it would be enough to end fuel poverty and in time slash the energy bill of every home in the UK.
"This is the solution the Government must back if it is serious about helping households bring down their energy bills."
Mr Cameron's official spokesman told a regular Westminster media briefing: "At the moment, we have a market that isn't working properly.
"One of the reasons why the market isn't working properly is because we have a huge number of different tariffs which leave consumers with an impossible choice and in practice, most consumers aren't able to exercise that choice.
"By simplifying the tariff structure, we should see much better and more effective competition. If you have got more competition, you get lower prices.
"We have always argued that there should be a competitive market and competition between providers."
Shadow energy secretary Caroline Flint said: "David Cameron is trying to pull the wool over people's eyes. The Prime Minister promised to force the energy companies to put everyone on the cheapest tariff and he has broken his promise.
"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. We need a One Nation Labour government to break the dominance of the energy giants, protect vulnerable customers from being ripped off and create a tough new energy regulator with the power to force energy companies to pass on savings to consumers."
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