Energy tariff consultation

We now have more detail on the UK government’s promised crackdown on energy prices. The Department of Energy and Climate Change discussion document include proposals to:

  • Limit suppliers to four “core tariffs” per fuel. This will end the proliferation of tariffs that has taken place over the last few years. However, collective switching schemes will be able to negotiate bespoke prices.
  • Require that the four “core tariffs” contain one standard variable rate tariff, and one fixed term fixed price tariff. This will ensure that these two tariff types, which account for 85% of all customers, are clear, simple and easily compared.
  • Allow suppliers freedom to offer the remaining two tariff types as they wish, to preserve customers’ choices, such as green tariffs.
  • Require that suppliers offer just a single price for each of the four tariff types . As Ofgem set out, this requirement would not prohibit discounts for dual fuel or lower cost payment methods.
  • Prohibit poor value “dead” tariffs. This will ensure that no customers are left behind on poor value, out of date tariffs.

The Government wants all customers to have been placed on the cheapest price available from their supplier for the tariff type of their choice as quickly as possible and, at the latest, by Summer 2014. They claim these new measures will also make it easier for consumers to shop around for the best market-wide deal.

The discussion document also includes:

  • measures to require suppliers to provide clearer information to consumers to help them switch;
  • proposals to establish a co-ordinated network of voluntary organisations and community groups to help vulnerable households get a better energy deal;
  • proposals for the Government to take enabling powers in the Energy Bill to ensure that energy consumers can benefit from innovative technology that facilitates switching through smart phones and other devices;
  • steps Government is taking to address barriers to collective switching and purchasing to allow it to flourish

Initial reaction to the proposals are very mixed. They have been broadly welcomed by switching websites and Which. Predictable criticism from the IoD who just churn out their competition mantra without recognising the obvious market failure.

Labour’s shadow energy minister Tom Greatrex, 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.”

We agree that simple tariff structures are part of the solution, but more radical reforms are needed to sort out energy prices.

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