The independent energy provider First Utility have argued that all energy suppliers should be compelled to do away with standard variable tariffs. At present, of all the customers with the big six energy firms, just below 70% of them are on this type of tariff and are therefore being overcharged £235 per annum.
They have argued that the standard variable levies should be substituted with ‘out of contract’ tariffs as this will be conducive to getting customers to switch onto the deals with better value. In addition, First Utility believe energy consumers should receive information updates on a monthly basis concerning the best prices available in the market thus making them more likely to get the best rates.
The chief executive at First Utility, Ian McCaig, commented on these recommendations: “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.
First Utility believes that the industry needs to change from within and do more to inform and support customers to help them make informed choices about the best tariff. A big step would be to scrap the standard variable tariff and call it what it is- the ‘Out of Contract Tariff’ i.e. the tariff you’re left on when you’re not on one of the good ones!”
First Utility are reacting to increasing criticism over how the energy market is regulated at present. Figures produced by the company show that households in Britain are being overcharged a total of £3.4 billion in energy bills.
Additional evidence reveals that around 80% of UK energy consumers would benefits from being provided with more detailed information about their current deal and others that are available across the market and not just with their current provider. This would go a step further from the rules introduced last year by Ofgem meaning energy companies are now compelled to tell their customers of better deals available in-house.
Mr. McCaig also argued that this would not simply be a rebranding diversionary tactic and that it would lead to tangible benefits. He argued: “It would be more than that. The out of contract tariff would be regulated and tied to the wholesale rate and so costs would be reflective of the near-term cost of wholesale energy.”
This report from First Utility comes at a time when the Competition and Markets Authority are investigating the energy market. However, they have already released data showing that in the period 2012-2014, more than 95% of customers on a dual-fuel tariff at the biggest firms in Britain would have been able to save money by switching to better deals or to other providers.
They emphasized the vulnerability of “sticky” customers and that around 40% to 50% of electricity consumers have been with their provider for over 10 years. They went on to report that these customers who did not look around and thus benefit were frequently “less educated, less well-off, more likely to describe themselves as struggling financially, less likely to own their own home, less likely to have internet access, more likely to be disabled or a single parent.”
Ed Davey, the Energy and Climate secretary has criticised this proposal: “It is absolutely right to raise the issue as analysis shows the 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.”
The full report from the Competition and Markets Authority is set to be released in June, just after the election. The energy market is set to receive further scrutiny over this period.