Ed Davey rejects ban on standard energy tariffs

The Competition and Markets Authority is currently investigating the domestic energy market and is set to publish its interim conclusions in June.

Simon Read
Monday 09 March 2015 00:32
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The independent supplier First Utility has called for variable energy tariffs to be scrapped
The independent supplier First Utility has called for variable energy tariffs to be scrapped

Calls for variable energy tariffs to be cut to reduce the number of people overpaying for gas and electricity have been rejected by the Energy and Climate Change Secretary, Ed Davey, on competition grounds.

The independent supplier First Utility has called for variable tariffs to be scrapped to help the 70 per cent of customers of the “Big Six” suppliers overpaying by up to £235 per year.

But Mr Davey told The Independent: “Banning variable tariffs would be a major intervention in the market. To do that you would need evidence that it was the right solution. There could be other solutions that promote competition.”

The Competition and Markets Authority is currently investigating the domestic energy market and is set to publish its interim conclusions in June. The full report is expected before the end of the year. Mr Davey said whatever solution proposed would be based on solid evidence.

Ian McCaig, First Utility’s chief executive, said: “The UK energy industry has contrived to put itself in a situation where around two-thirds of its customers are on the most expensive energy tariff the industry has to offer, namely the ‘standard variable tariff’. That simply can’t be right and is even more inexcusable in a climate where wholesale prices have been coming down.”

He said a big step would be to scrap the standard variable tariff “and call it what it is – the ‘Out of Contract Tariff’ – the tariff you’re left on when you’re not on one of the good ones!”

He also called for every household to be told in writing every month whether there is a better, cheaper tariff for them anywhere across the entire industry, not just their current provider.

Currently the regulator, Ofgem, says suppliers must include details of only their own cheapest tariff on all customer bills. However, many customers, particularly those with the “Big Six”, only receive bills quarterly or half-yearly. Mr McCaig claims this aids the level of disengagement among energy customers and fails to tell the full story about possible savings. He said his company has less than 15 per cent of its customers on standard variable tariffs.

Mr Davey said: “It is absolutely right to raise the issue as analysis shows that people on standard variable tariffs do end up getting worse deals than those who regularly switch tariffs or suppliers. But I’m not into regulations that restrict or ban certain sales: it is important to allow companies to compete.

“That’s why we’re doing everything we can to encourage people to switch. Banning variable tariffs is not the way to go. What we are doing, such as introducing faster switching and stronger codes of conduct for the switching websites, is the right way to go.”

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