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The end of standard tariffs?

British Gas

British Gas will soon scrap standard tariffs for new customers – will this be a game-changer for the energy market?

British Gas, the UK’s biggest energy supplier, announced plans today to withdraw its standard variable gas and electricity tariff. The company is the third energy provider to announce the end of its Standard Variable Tariff (SVT) following announcements from Eon and Scottish Power.

British Gas

British Gas has pledged to end its SVT for new customers by March 2018. Instead, it will replace the SVT with a new fixed-term, 12-month default tariff with no exit fees and customers will be offered at least two new deals when their tariff ends.

The energy company has explained that customers already on SVTs will be contacted twice a year about cheaper deals in an effort to move them onto fixed term deals.

Alongside these changes, British Gas has promised to expand their rewards scheme, make bills simpler, improve its customer service and become more efficient to keep bills down.

British Gas says that these changes will fundamentally change how consumers engage with the energy market. It has highlighted the open-ended SVTs as one of the biggest problems in a market beset with consumer disengagement and a lack of competition for the 58% of consumers who have never switched or done so only once.

A better deal for energy customers?

In November 2016, our Fair Energy Prices campaign challenged energy suppliers to publish plans on how they will help standard tariff customers find better deals. Fourteen suppliers, including British Gas, responded to our campaign earlier this year and since then we’ve been waiting for these plans to be delivered.

The move by British Gas is welcome – but only if it leads to more consumers engaging in the energy market and getting the best deals available.

Reports suggest that British Gas customers will save £75 off its current SVTs with this new online tariff. But at present, we don’t know how much the new default tariff will cost.

British Gas’ cheapest fixed tariff currently available is only £13 less than its standard tariff, for the average user per year. But, at the time of writing, that is still a whopping £271 pricier than the cheapest tariff on the market per year for the average user.

So, how much benefit consumers see will rely on what level the new default tariff will be set at and how effective British Gas’ measures are at getting existing consumers to choose the best deals available. Consumers who want to get the best deals on the market still need to shop around and switch.

What about the energy price cap?

British Gas’ announcement comes in the shadow of the government’s promise to cap energy prices. Last month it published a draft bill and it hopes to introduce a cap on SVTs and default tariffs by winter 2018/19.

Energy companies have pushed hard against the introduction of a cap as they warn it will lead to less choice for consumers, weaker competition and less innovation in the market.

British Gas boss, Iain Conn, said:

‘Price caps don’t work. We think everybody should have a fixed term energy deal instead. It will increase customer engagement, choice and result in better deals.’

British Gas instead wants the government and Ofgem to ban SVTs without end dates, remove social and environmental policy costs from customers’ bills and pay them from general taxation and do more to identify vulnerable customers needing protection.

Your views on energy

So today is big news for British Gas and its customers. We hope that this will see more people switching away from those often poor value standard tariffs. However, we now need to see whether this news does actually lead to people getting a better deal.

What do you think to today’s news from British Gas? Do you think this will get more people on better value tariffs? Would you like other providers to follow suit?

Comments

Asking for a friend, back in the summer, British Gas had an offer to cap electricity prices.

Does anyone have the wording of what was offered, whether it was the existing rate, and when it would start please?

The letter would have been prior to 1st August. The friend accepted the offer but higher rates were applied to the cap which doesn’t seem quite right.

Ofgem are consulting on their proposal to require energy suppliers to provide compensation to customers if their switch (between suppliers or tariffs) goes wrong. https://www.ofgem.gov.uk/system/files/docs/2017/12/open_letter_-_creating_incentives_to_improve_switching_performance_1.pdf

Ofgem have today published a “league table” showing the proportion of their customers still on standard variable tariffs.
https://www.ofgem.gov.uk/publications-and-updates/standard-variable-tariffs-latest-trends-september-2017

Ofgem are looking to get more customers onto “more competitive” fixed price tariffs. However, as more customers do move, or are moved, over to these so their price will rise nearer to svts, simply because the energy companies will want to maintain their profit margins. So the “sticky” customers will gain a little, those who have habitually switched will lose a good deal of their saving. Not a bad thing; I think any energy company should price their product based on cost, and not use cross-subsidies to attract customers who are prepared to put in the (little) effort needed to switch.

However, why they do not just abandon subsidised fixed price fixed term deals altogether, and just concentrate in the main on properly-priced standard variable tariffs with no fixed term, needs explaining (to me).

I suspect that if there was a move to get rid of the cheaper fixed tariffs there would be huge opposition from those who use them. The government of the day has to maintain some credibility. I thought that the plan was to cap prices of the expensive tariffs.

They will have no option but to take what is on offer, as now. The energy companies have to make a sensible profit, so loss leaders will gradually be increased to lose less, as the profitable tariffs reduce. It is just a simple commercial consequence. We delude ourselves if we think overall energy will become cheaper by regulator or government tinkering. Energy is largely dependent upon world prices, distribution costs and government taxes. When we leave the EU we could abolish vat; then prices could fall by just under 5%. Something else would have to go up in price though to make up for this loss in tax revenue.

I’m not expecting overall energy prices to fall, but sadly we don’t all pay average prices.

I have said before I am not happy that the poor and vulnerable are often paying more to subsidise people like ourselves who have managed to obtain cheaper tariffs. In my view, the needs of the people of this country must take priority over the wishes of business.

Pricing energy at what it costs, and not having cross subsidy, would sort that. If deserving people are unable to find the money to pay energy bills, it is the state’s job to help them from tax and NI. I would like to see the automatic £200 winter fuel payment only given to people who need it – maybe those who do not pay income tax – and use the proceeds to help the deserving needy. Either as cash, or preferably direct to their energy supplier.

The ability to charge those energy customers who have smart meters on a half-hourly basies is in the pipeline:
https://www.ofgem.gov.uk/system/files/docs/2018/01/electricity_settlement_reform_scr_-_ofgem_response_to_stakeholder_feedback_.pdf

On 24 July 2017 we launched the Electricity Settlement Reform Significant Code Review (SCR). Through this SCR, we aim to develop and then (subject to a Business Case assessment) implement an enduring process to enable half-hourly settlement (HHS) of domestic and smaller non-domestic consumers’ electricity usage. This aims to deliver benefits for consumers by maximising the opportunities smart metering provides in enabling a smart, flexible energy system.

Depending upon when you use your energy, you could end up paying more – if much is used at peak times for instance.

It will be more difficult to estimate how much your bill might be, and which might be the best tariffs to choose, certainly without a 12 month history that records time-of-day consumption. So abolishing a standard variable tariff may not be the solution to simplifying choosing cheaper energy prices.

Lady Pensioner says:
2 February 2018

I think all suppliers should be stopped from charging low income people the extortionate prices of the >
“STANDING CHARGE” Whether one uses ; Gas/Electricity/Water./Sewerage./Rates ‘they charge’ even if you haven’t used anything..or for time your away from home; on holiday; or in hospital. or away visiting family…?
Standing charges are a Ripp-Off and should be done away with, by government.

A few suppliers, e.g. Ebico Zero and Utilita, already offer zero standing charge tariffs.

I think more suppliers would offer them and they would be more competitively priced if there was more obvious demand for them.

A significant part of an energy bill is non-energy – maintaining connections, administering an account, meter reading, environmental charges, contributions to helping the vulnerable, smart meter roll out, for example. Each consumer needs to contribute to these, hence the use of a fixed cost, as well as the variable costs that depend on how much energy you use.

I’d like to see Ofgem define how energy companies should calculate the standing charge so they are all done on the same basis, covering the minimum of items that are not dependent on consumption. The charge will vary between suppliers because of differences in their own fixed costs. Preferably everyone should then pay this standing charge with a given energy supplier.

At present standing charges can vary quite substantially, so it can be worth accepting a higher fixed charge in return for lower unit costs. This seems an unnecessary, and unjustified, complication.

Those who pay no standing charge generally pay a substantially higher unit cost – the way the fixed costs are recovered by the supplier. You usually have to be a very low consumer to benefit.

It should not matter whether they are low income or not. The benefits system is designed to help those in need.

When you have a service connected to your property you expect it to be properly maintained and repaired. The supplier’s costs for administering an account, for reading the meter, and your share of their costs need to be paid, so I do not see why a low user – a second home owner as another example – should escape their obligation to pay for the provision of the service.