Firms must offer the best tariff... but move may not cut energy bills

ENERGY firms will be forced to offer the cheapest tariff available to every one of their customers under long-awaited plans rolled out by the Government.

But Energy Secretary Ed Davey admitted yesterday that he cannot guarantee the measures will mean all households see their bills reduced as a result.

Under the new proposals, first announced by David Cameron in the Commons last month, energy firms will be ordered to simplify their pricing plans – offering just four different tariffs to choose from – and place all customers on the cheapest price available.

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Critics warned that the scheme, which builds 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.

But a spokesman for Mr Cameron said the measure would enable “more effective competition” by making it easier for people to switch from one tariff to another - and so lead to lower prices.

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 because of rising wholesale prices, which have been passed on to consumers.

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 the announcement, Mr Davey said: “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 a bewildering 410 tariffs on the market, and 650 “dead” tariffs which existing customers are on but which were not available to new customers.

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 yesterday, suppliers would be limited to four “core tariffs” per fuel, to end the proliferation of pricing plans.

Richard Lloyd, director of consumer body Which?, said the 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.

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. Consumers must not end up as net losers.”

Guy Newey, head of energy and environment at centre-right think-tank 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.”

Comment: Page 12.