Customers ‘misguided’ to think new energy tariffs will cut bills

Consumers are “misguided” it they think the Government’s new proposals for energy tariffs will cut prices. That’s according to an energy and carbon management firm which believes Energy Secretary Ed […]

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By Priyanka Shrestha

Consumers are “misguided” it they think the Government’s new proposals for energy tariffs will cut prices.

That’s according to an energy and carbon management firm which believes Energy Secretary Ed Davey’s plans for suppliers to offer customers their cheapest gas and electricity tariffs and limit these to four main tariffs per fuel type won’t be as effective as it is hoped.

DECC’s new proposals follows Prime Minister David Cameron’s surprise pledge last month that consumers should get the lowest tariffs.

Andrew Horstead (pictured), Risk Analyst at Utilyx said: “Consumers are misguided if they think that this will lead to cheaper energy or competition will improve. Their bills will continue to rise due to the impact of environmental taxes and social obligations, while the outlook for UK wholesale energy costs shows no sign of improvement.

“Those consumers that have yet to engage with the energy market and haven’t switched for some time will see a benefit from the reduced number of tariffs. Unfortunately, savvy switchers or those getting a discount for buying power and gas form one supplier will be penalised as they may see that the cheapest offers are no longer available. Focus on tariffs is misplaced, what the Government really needs to do is to engage with consumers and businesses to reduce energy consumption and promote energy efficiency.”

Warwick Business School also questioned whether the new plans would actually lead to lower prices for consumers. Dr Monica Guilietti, Associate Professor of Global Energy recorded UK energy prices for the last 16 years and found the “hassle cost” of switching suppliers is equivalent to 15-20% of a consumer’s monthly bill.

She said: “There is a lot of evidence that it is complicated and time consuming to choose the right tariff but many economists would agree that reducing the range of tariffs to only ‘the lowest tariffs’ would not necessarily provide benefits to all customers and will reduce the extent of competition.

“The worry with the Government’s proposal is that even less people will change tariff now. Consumers will leave it to their supplier to automatically put them on the lowest tariff. But it is questionable whether these will actually be the lowest tariffs as there will be less choice for the consumer.

“Only having four tariffs is likely to lead to higher tariffs because there are only six companies who dominate the wholesale market. If there are fewer tariffs, it makes it easier for companies to check what everybody else is doing, so it will bring pricing closer together.”

Environmental group Friends of the Earth said if David Cameron really wants to cut bills, “he should regulate his gas-guzzling Chancellor”. Andrew Pendleton, Head of Policy and Campaigns said: “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.

“To create a long-lasting solution to soaring fuel bills, and tackle climate change, we need to invest in a massive energy saving programme and develop the UK’s huge clean energy potential from the wind, waves and sun.”

Price comparison site uSwitch.com also said although it welcomes the Government’s intention to help consumers, there are “some crinkles that will need to be ironed out”.