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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

British Gas will maintain its profitability, as will E.On and Scottish Power. So, if their current standard variable tariffs are particularly profitable they will not be replacing them with tariffs that lose that profitability. Worth looking at how much the proposed fixed term fixed price tariffs cost in relation to the rest of the market, but a saving of £75 for BG customers does not seem a great saving. I cannot see how this will, of itself, motivate customers to engage more with the market than they do now. Many cannot be bothered, for the savings on offer, according to the CMA report; some are not able to take advantage of offers. Yet there are still around 40 energy suppliers out their touting for business at significantly different tariffs, if you look.

My own view is we should scrap fixed term tariffs – why make people have to choose each year? If, like I do, people want to search the market for deals, that’s fine, but others will simply end up on poor-value default deals each year if they don’t make any effort.

I would rather we separated out government-imposed charges (smart meters, environmental charges, subsidies for some….) and pay for those by general taxation. Then just pay an energy bill based on the core costs – on wholesale gas and electricity raw fuel prices, distribution, administration and profit (+ vat). Pay for what it costs – if world markets go up, pay a little more and if they go down, a little less. In other words, fairly priced variable tariffs; choose then between suppliers, but not having to wade through a bundle of artificial tariffs.

apparently some landlords also make it so that their tenants can only use a named energy supplier and cannot change even if they wish to keep the supplier they had in their previous accommodation should this also not be addressed ?

It also means tenants cannot take advantage of dual fuel offers as well, or economy seven, and are forced into now expensive district heating schemes with no redress for the low income fuel allowance schemes too.

Switching energy supplier if you’re a tenant

“This advice applies to England
You can usually still change energy supplier if you rent your home. The exception is if your landlord pays your supplier for the energy you use.

If you’re not sure whether you’re responsible for paying for your energy, check your tenancy agreement.

If you pay your energy supplier

You have the right to switch supplier if you pay your energy supplier directly for your gas or electricity. This includes if you have a prepayment meter.

You should check your tenancy agreement to see if the landlord has a ‘preferred supplier’. This won’t stop you from switching supplier, but you should tell your landlord or letting agent.

You may have to return the account to the original supplier at the end of your tenancy.”

Left British Gas years ago.. Basically they are a Greedy Business.

Many companies only care about profits and consumers who provide the money for them to be profitable come low down on their list of important things for them when changes are made but will try to say it is the interest of consumers when usually it is in the interest of profit

The biggest rip off in any bill is the daily standing charge. Almost half my yearly bill is standing charges, it’s abut time these were scrapped and a bit more added to the pence per unit/Kwh whereby heavy users paid more but light users saved.

With around 40 suppliers there is a variety of unit charges and daily standing charges. Using your typical annual consumption you can see which tariffs give you the best annual charge. I do not see it matters what the components are if all you want to do is save money (we do, don’t we?).

There are fixed costs to recover that apply to all consumers, whether large or small users. Some try to recover this through high unit rates, and that might well suit a low user. Others recover this through a fixed charge plus lower unit costs – that will suit the majority of users. But it is unfair for someone with very little use not to contribute towards admin, meter reading, maintenance of connection and supply, government charges leaving others to shoulder the costs.

I would like to see some standardisation on standing charges – visibility of what they cover – and maybe Ofgem could approach this. However, if these costs were only recovered through the unit charge, in mild winters too little would be recovered and in cold prolonged winters too much. A predictable income from standing charges at least gives the potential to charge what it costs, and not profiteer when winters are hard.

With the majority of British Gas customers on the more expensive standard variable tariff, this is a step in the right direction.

We are told that the company will contact those on the expensive SVTs in an effort to move them onto fixed term deals. This will add to costs and may not be very effective. Simply getting rid of the substantial difference in tariff prices would be much more effective. Roll on price caps.

How much longer do we have to put up with energy companies charging their customers significantly different prices according to which tariff they are on?

You don’t have to put up with price differentials. Just use your freedom of choice to move to a better supplier. It is little different to choosing where to buy a household appliance at the best price.

Abolishing SVTs means a profitable “product” will go, and that profit will be restored by higher-priced fixed term tariffs. If Ofgem’s latest figures are correct, the major suppliers make an average 4.83% pre-tax margin on a dual fuel supply https://www.ofgem.gov.uk/gas/retail-market/retail-market-monitoring/understanding-profits-large-energy-suppliers. This will not provide for an overall price reduction.

Government interference in commercial practice is usually doomed to fail, because they use political motives rather than commercial ones. The cap was on svts – so the energy suppliers will just stop using svts. So instead of having sensible svts that follow world energy prices we’ll now have more artificial tariffs at a “fixed price” – and are the consumers going to be any better off? I doubt it.

What I’d like to see is Ofgem operating a price comparison site with every supplier and tariff represented, accessible on line or by phone. Funded by a small levy on all energy companies, large or small.

Goodness knows how much switching adds to costs. I recently switched and had my gas and electricity meters changed because they were not compatible with my new supplier. Anyone want an e.on smart display that is now redundant?

It is commercial practices that have produced a bewildering range of tariffs, which does not include collective switching schemes, which might be the cheapest alternative.

We know that efforts to get people to switch tariffs don’t work, with most people still on the more expensive SVTs. I support capping prices to control the behaviour of the companies that are exploiting their loyal customers. The difference in prices may seem small but maybe not for those who cannot afford to heat their homes properly.

The differences in prices for someone with an Ofgem “medium consumption” is large – from £784.57 to £1332.27 a year, depending upon supplier and tariff. With 40 energy suppliers there is competitive pricing. The problem is in persuading many people that it is worthwhile switching to make a saving (many cannot be bothered, according to surveys) and helping those unable to help themselves. Even if you reduce the number of tariffs, there will still be a large number of suppliers to choose from. This is unlikely to change so we need to find a pragmatic, not artificial, solution – well, in my opinion 🙂 .

One way, if you stick with a particular supplier, might be to charge on a particular tariff but if, at the end of the year, another of their tariffs would have reduced your bill, then charge that and give a refund.

I do not see why, in the main, there should be substantial differences in how energy is charged for by a given supplier. I accept that off-peak should be cheaper. Many may be on this, but pay more because their usage changes and the daytime expensive tariff becomes dominant., Why penalise them for the “gamble”? Why not then charge the normal more beneficial tariff. Some light users may choose an expensive unit-only charge, with no standing charge; if they use more than they forecast then why not recalculate their bill on a better standing charge tariff?

It would be a lot simpler, in my view, if consumers only had to choose a supplier, knowing that they would then automatically get the best deal going from that supplier whatever their energy use.

As I said, getting people to switch supplier/tariff has had limited success. Let’s see what capped prices achieves.

Such information and guesswork as there is:
https://www.theguardian.com/money/2017/oct/12/may-energy-price-cap-ofgem-electricity-gas-tariffs
If energy companies simply remove standard variable tariffs, then this is a waste of time, when far cheaper deals are available. You cannot force people to switch suppliers, only encourage them, but you can put in regulations that ensure they pay the minimum tariff available. What’s wrong with that?

It is useful to have several alternative tariffs and a range of competitive suppliers because energy consumption does not fall into a standard pattern. The general assumption is that almost every domestic property uses mains electricity and that is probably valid. Therefore prime attention should be on reducing the cost of electric power because that will immediately benefit the most consumers. But after electricity use there is a whole spectrum of other energy uses from none [i.e. all electric] through mains gas, oil, LPG, wood burning or multi-fuel, coal, and independent renewables, all to greater or lesser proportions of the total energy consumption. Stir into the mix the times of demand, occupation characteristics, seasonal and climatic conditions, insulation values of properties, and the kind of heating and hot water systems built into properties. Thus there is a need for a variety of tariffs and I believe it is asking too much of the consumer to forecast and calculate the optimum tariff for their conditions, even with the [biased] assistance of most comparison websites. So I support Malcolm’s suggestion for an end of year review and correction of the charge according to the consumption profile. It is possible that only the bigger companies could support this but market forces would ultimately sort that out or smaller companies could share the services of an independent calculating house to produce the annual reckoning.

I strongly support British Gas’s recommendation to “remove social and environmental policy costs from customers’ bills and pay them from general taxation“. The government never mentions this but it would enormously help those on lower incomes who pay no income tax but have to pay these regressive surcharges on their energy bills [and subject to VAT in some cases]. They hurt most those who are in the vulnerable category [where heating or eating is a factor], those with older and poorly insulated property, those with bigger properties than they need but for whom moving is impractical, those who require the heating on at a high temperature or for prolonged periods, and those whose only fuel is electricity.

I do not know the total amount that would have to be transferred to general taxation or how that would impact across the tax bands, and some of it could go into certain forms of indirect taxation, but it would be a good step to take and would be a responsible and arguably more equitable form of redistribution. It would not have to all be done at once but by degrees, one step at a time, over, say, a five year transitional period.

I think we concentrate excessively on energy bills, when “hard-pressed” consumers face other higher routine costs. Perhaps we should pay attention to these?
Average dual fuel energy bill – £1123
Average council tax……………- £1439
Average commuting cost…….- £1752
Average food spend…………..- £2766
Average UK rent………………..-£11052

Perhaps it would be better to be guided by consumer concerns, and energy prices have been a major one for years. A large amount of food is distributed to those who need it. Elderly people don’t spend money on commuting.

From a YouGov survey: https://yougov.co.uk/news/2015/01/14/energy-biggest-household-concern/

Only because the press and Which? et al. focus on it. When did you see campaigns focused on housing rents, food prices, even commuting cost or council taxes of the same intensity? I’d be working on the bigger spends for better potential savings.

Energy has a real cost; we have to buy it on the world market, distribute it throughout the UK, and pay administration costs. If Ofgem, or someone else who was suitable knowledgeable, put together a benchmark figure for what energy should cost us, we’d have something to judge the market against. As it is we are simply talking about costs in an emotive way.

How much does anyone think energy should cost, and how do you arrive at that? Perhaps Which? could suggest a price? Or do we really just want the taxpayer to subsidise our bills?

I am not proposing the subsidisation of energy bills – the input costs are what they are and competition exists to influence them – but the transfer away from those bills of liabilities that should be borne by the whole of society in a fair and equitable manner [according to the conventions of taxation law as it has been positively enacted in Parliament]. These levies and obligations are being passed through the energy suppliers in a deliberate attempt by governments to avoid responsibility for them. It is a charade and borders on the unconstitutional.

As I posted earlier, these “government extras” should be funded separately.At the moment “environmental and social costs” amount to £91 on an average dual fuel bill – over 8%. And set to rise to 10% I believe. If these were removed, our bills would drop by around 9%. However, the costs would then be found from general taxation; a shift not an abolition.

We have been unwittingly forced to fund an ill-conceived smart meter “roll out”, now accompanied by stupid adverts. I am unable to believe that if most people do not, or cannot, switch suppliers, they will ever use these meters to monitor their consumption regularly and make any changes to their habits. Their only real use seems currently to put meter readers out of work. In the future, a positive contribution for some will be their ability to charge consumers by the half-hour, following the cost of energy (electricity mainly I presume) during the day and night, as its wholesale cost changes depending upon demand. But once again whether many will choose to alter their usage habits, or even be capable of doing so, is very questionable.

Whatever the reasons, Malcolm, energy costs remain the greatest public concern.

I had a long chat with the chap who changed my smart meters recently. He said that he often finds gas and electricity meters that have been bypassed to obtain free energy. I asked if this was most common in poor areas but apparently not, and he had discovered a problem in a large Victorian house that morning. I hope that cases are reported and appropriate action taken. What he did say was that smart meters would make it much easier to detect energy theft. Maybe that’s why the energy companies are keen on them.

“The broadband/phone combo you’re already using will affect your thoughts on signing up to either Sky or BT, and basic deals can be different in the first year when you sign up and so on.

A combination of Amazon (£6.58), NowTV (£6.99) and Netflix (£5.99) would cost £19.56 a month – giving you pretty much everything except AMC and Universal.

To add AMC to the basic Sky package (£20) is an extra £19.99 without BT Broadband (it’s bundled with BT Sports); so with Amazon (£6.58) and Netflix (£5.99) that would be £52.56 a month. If you switch to BT Broadband, AMC is an extra £5, which would be £37.57 a month.”
Guardian 2015

I assume it is more expensive now. As these are vital for us I await the campaign to crush the excessive profits and wages paid.

We must stop perpetuating myths about being “overcharged” by £1.2 billion a year, and energy companies making “excessive” profits – 4.8% excessive? Then instead of people being mislead into believing they are all being ripped off, they might see the reality of where money could be best saved – for those who really need help.

We need to analyse this on a factual basis so we can see what a sensible energy price should be. Then we can progress better with a discussion on how to help those most in need.

I’ve just received a letter telling me my £200 winter fuel payment will be deposited in my bank; I do not need this, nor do many others. I would far rather this was targeted at those who are genuinely struggling to pay for food, rent, and energy to help them. What a waste of taxpayers’ money.

It seems odd that given the publicity given to ease of switching, the wide difference in cost freely available, and the number of people reportedly choosing not to bother – in other words when many people can easily access lower costs if they bothered – that they “remain concerned”. Most people could become much less concerned if the helped themselves.

YouGov say “Approaching a third (32%) would switch for £100 or less, a quarter (25%) would need to save £101-200 and around one in five (19%) say that they would want to see savings of over £200 a year in order to change supplier. A further 24% either didn’t know (17%) or wouldn’t switch regardless of the benefit (7%).” So I wonder just how concerned they really are, when 74% don’t want to bother to save at least £100 – 10% of an average bill..

Your prices come to well over my income for a year! Thankfully I have paid off my mortgage and being retired do not have a commuting cost although I do have travel for various reasons some of which are compulsory, in addition I have the advantage of living on my own and hence less council tax and quite a bit less food, whilst my electric bill is cut by having solar pv panels and my gas cut a bit by my solar water heating panels.

I have been a loyal customer of British Gas frome the off, but now I am in the midst of a change over, In my view the rot set in with privatisation, I used to get nose bleeds by just watching the prices rise. I would be delighted if all the Utillities were Nationalised, including Transport. I could go on…Best wishes Alan Wright…..

malcolm, if your £200 winter fuel payment is not required, have you considered donating it to some appropriate charity?

No. I’ll donate it towards my council tax to help social care and the rest towards my income tax to help those on benefits.

The elimination of the standard tariff will make no difference to affordability for most consumers. Despite data about the number of customers on a standard tariff watch as this company ‘converts’ these customers to new tariffs that have a facade of reasonable rates but actually protect profit margins.

We have heard similar initiatives before; and nothing has been done to address the imbalance in the pricing regime (low users pay much higher rates than high users; how is that fair for a finite resource?) and I think it is absurd to expect the energy providers to cut their own throats by expecting them to drive down usage or rates.

Also bills are ridiculously hard to read, and impossible to truly compare. I shop around whenever my current deal expires but I am asked to sign up to a tariff that is competitive today, but lock myself to it for 18 months or more, when other providers may well have a better offer in just a few weeks. I understand that rates may rise and I will benefit but I keep a close eye on my unit cost (including standing charges and discounts) and my electricity and gas unit prices have continuously risen for the past 15 years, with barely a tick downwards across all that time. If the best I can do is take constant rate increases based on the most competitive choice at the time then what does that tell us?

PS my data is taken from every bill I have received since 2000 and is available for Which to use if interested

Keith Hitchman says:
21 November 2017

What about those of us on Pre-Pay Meters?? What will happen to us??

There is already a cap on those tariffs, I believe, and the ability to choose deals is being dealt with by Ofgem.

Generally energy company customers switching to lower tariffs unless the differential between what they are currently paiding to a lower tariff has to be seen to be worth while to switch. Customer inertia and general insouciance is something that suits providers, everything is about maintaining or increasing profits for the energy corporates. Regrettably it is also the government of the day that prefer high tax takes from ultimately the customer through the energy provider, although the state does not like to draw attention to its monetary greed and confusing policies therefore prefers that the provider is seen to be the stand alone culprit.

ann w says:
21 November 2017

The standard variable tariff is the right one in some cases – for example people occupying short-term let properties while they work in an area or find a house to buy. Fixed term tariffs almost always have a penalty clause – so you could end up paying more because of this. Some of us find all the hassle of shopping around for so-called best deals for utilities is both stressful, time-consuming and very tiring. We know we pay a bit more – so we use a bit less to compensate. As for the smart meter – the novelty wore off in 24 hours; now it just sits there, but we do like to be able to have an up-to-date record of where we are with the bills, without having to send in meter readings.

Geoff says:
21 November 2017

The sooner the industry is nationalised along with the drug companies and banking and insurance the better, this government has no intention of helping anyone other than the shareholders

Chris says:
21 November 2017

I always switch every year to a better rate/provider and have always found it easy to do. However people who are not used to using the internet will find it difficult; I help a friend who is not computer literate and she, too, has saved money. It would, of course, be better if fixed term deals were replaced by fair priced ‘normal’ deals.

It really doesn’t matter what the energy companies announce. Some may sound appealing and give the impression that they are doing something to help the consumer. But what’s the betting that there have been dozens of people sat in rooms thinking up the next new scheme to rob us one way or another. Normally, when things are given by one hand, the other takes away. No doubt there’s a method in what they perceive to be doing, but what we all need to remember is that shareholders and their dividends are involved. That is their main objective, to give shareholders a good return, and the shareholders aren’t happy with small profits, they want to make a killing and they don’t care who they rob to get it. One thing is for sure, no energy company is going to lose money to keep customers they always have tricks up their sleeves. The public will never matter to them, just shareholders and profit!

Jessie Young says:
21 November 2017

I am an elderly widow. My late husband used to deal with the utilities. I remember loyalty. It seems to me that being able to stick with an agreement is a luxury that I can no longer afford. I really do not want to have to keep changing companies and contracts. Is there no one who will regulate for a status quo ?

David says:
21 November 2017

British Gas cannot be trusted with this. They will endeavour to maintain their profit margin at customer service expenses. Expect slight of hand!

Rather than cap energy bills, should we cap the profits of all energy suppliers? When we can choose from up to 40 of them, at substantially different prices, I see no need to do this. If we don’t like their prices, move to another supplier.

No essential utilities should be paid for especially to the greedy private sector.
Water is a natural resource as is wind and they are both free. It’s pure greed by Governments and Big Companies to make money.
All Utilities should be State Owned and State Run. By all means add 10p in the pound on income tax to cover costs.

You could disconnect your water supply and use free rainwater, and install a wind turbine at your cost. But of course usable water and energy are not “free” – they require high investment in equipment and people to turn them into usable products and distribute them to your home. This means paying for them.

You must also bear in mind that your water bills cover drainage and sewage charges, so even in a property with no running water supply, drainage and sewage have to be paid for!

Quite true Janet, and the bill includes rainwater disposal – unless you can show you have an alternative method. For many years I was totally unaware that my water bill included a charge for disposing of rainwater from my property into their drainage system, but that if I had soakaways that charge would not be made.When I discovered this I received a “discretionary” rebate of 10 years overpayment. I did point out the charge was very poorly publicised, if at all, when the change was introduced years ago, and current bills hardly advertised the possible reduction.

David Ward says:
21 November 2017

I was a “loyal” British Gas customer for the best part of thirty years until a very good friend obtained other quotes for me, I am a very senior citizen and not really conversant with “modern” methods of conducting business, I suppose far too set in my ways really. My combined Gas?electric dual fuel invoice was reduced by around £500 per annum. The lesson here is simply SWITCH supplier.

Have just received my home care renewal and has gone up from £191.32 last year to £242.49 this year only been out once for annual service. What a rip off. Nothing but greed!!!

Have you tried phoning them to negotiate a better price? Look on line at what you could get it for, from your present supplier or an alternative, and haggle.

Hi – Malcolm makes a great point, lots of companies can be really receptive to haggling. Here’s our advice on how to haggle for a better price: https://www.which.co.uk/money/insurance/home-insurance/guides/how-to-find-cheap-home-insurance

Let us know how you get on 🙂

I never believed it would make any difference other than absorbing customers anger and making them believe there is a real choice when there is none.
On the day I was initiating a change of supplier, the company I was switching to sharply raised its prices, spoiling my plan and proving that the switching game gets customers nowhere.
Prices keep going up and suppliers raise them in turn to appear as though there is competition. It is game promoted by the government and media.
I am changing the way I vote. Nationalization is the only choice left to bring this extortion to an end.

Not so. I have regularly change tariffs and suppliers each year to get a better deal and it works. It is true that some deals may not stay around for long – maybe when they have attracted enough new customers. But your experience is no proof that switching doesn’t work. 40 energy suppliers want your business.;