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We’re calling for radical action for fairer energy tariffs

The inside of a pylon at sunset

Our executive director, Richard Lloyd, says Ofgem’s proposals for simpler energy tariffs do not go far enough. The Prime Minister’s promise for fairer energy bills will fail without more radical action.

Ofgem’s proposals for simpler energy tariffs, backed by the Prime Minister, are a welcome step in the right direction.

But they do not go far enough to keep prices in check, at a time when spiralling energy bills are consumers’ top financial concern.

Which? believes that the government should take more radical action to provide not just simpler, but fairer tariffs.

There is a real danger that these proposals will fail to live up to the PM’s promise of fairer bills because of the lack of competition in this market. There is nothing in today’s proposals to stop customers simply being put on their current suppliers’ ‘best’ uncompetitive deal.

Keep prices low with effective competition

Prices will only be kept as low as possible if there is more effective competition and switching between energy companies. For this to happen prices have to be presented in a clear, consistent and simple way, through a single unit price, so people can readily identify the cheapest deal for them – not just with their current supplier but across the market.

Consumer trust in the energy industry has plummeted, so the government must act to give consumers the confidence that the price they’re paying for their energy is a fair one. If these proposals have failed to fix our broken energy market by 2015, the government must step in and guarantee a fair price for all.

Comments
Member

Richard, I have never had any problem finding the best energy deal as, like many, I look at the switching websites – including switch with Which. All that matters to me is the total annual bill. And I do understand the way the bill is made up – not that it is necessary.
I happen not to agree with a single tariff because I do not think that represents the market properly – oversimplification may well be counter-productive. But I don’t want to argue this as others have differing views, and quite right too and its been thrashed around (and still is being). Ofgem have presumably consulted widely and I assume Which has had its input. However at some point we need a consensus to make progress – there is no right or wrong solution so we will all have to make some compromises. So let’s just get on with introducing an improved system.
Incidentally, we still have prices that are lower than many other European countries – not often mentioned, it it?

Member

Please carry on this campaign, Richard. It affects almost everyone in the UK.

Some people keep a close eye on fuel prices and switch suppliers to ensure that they always benefit from the lowest price, some do this occasionally, and some have never switched for one or more reasons. What about those who do not use computers? What about the disabled? Should the disabled be expected to pay more for energy? Let’s play the disability card to persuade the government of the need for simple unit pricing.

To have simple pricing, we need to get rid of standing charges. We need to get rid tariffs that have price bands that achieve the same as standing charges. We need to get rid of discounts etc. that make it difficult to compare prices offered by different companies. Ofgem, the regulator, wants to keep standing charges. I think we should treat Ofgem like a faulty regulator on a boiler and get it fixed as soon as possible!

Which? advocates having simple unit pricing that can be compared easily like petrol prices. None of us pay a standing charge when we visit a filling station. All the overheads involved in providing fuel are included in the price per litre.

My remarks refer only to domestic energy. It makes sense for commercial users to continue to negotiate prices with suppliers.

Member

Hang on! Why are the disabled expected to pay more for energy?

Member

You are able to find the best energy deal, Richard. That’s great, but spare a thought for the disabled who don’t share your abilities, and the elderly who can no longer cope well with financial matters. It’s not just the disabled but many elderly people and those without computers who do not shop around.

Member

Sorry, that should say Malcolm instead of Richard.

Member

It is in no-one’s interests to oversimplify and distort a market. What matters is to ensure that those who do not have the means or the faculties to do it for themselves are helped to do it in other ways. So let’s address that issue. It applies to many areas apart from energy – tax, savings, benefits claims, disabled allowances. i would suggest these are far more complex than understanding energy and deserving of help and advice for the less capable.
I don’t believe the elderly and disabled should be condemned as incapable of organising their affairs well – unless they are in decline of course. They are as representative as anyone, and the elderly often have the benefit of experience and judgement over less mature people. I think it is a little disingenuous to attempt to play the sympathy card. I am not so young, and have a disabled family member and I can assure you we have all our faculties. So let’s keep this factual and not emotive.

Member

I absolutely agree that some of the elderly have better experience and judgement in financial matters. They are usually aware of the perils of living in debt, unlike many younger people. Through working for a charity I know that it is vital to speak first to the person rather than their carer, since having a disability does not necessarily imply a lack of mental capacity.

For Which? to have started a campaign for simpler and fairer energy tariffs, there must be good reasons. The various Conversations have provided me with an insight, and I support the campaign. I recognise the needs of energy companies to make a profit and invest for the future, but is fairly evident that businesses providing public services need to be regulated to ensure that the public is treated fairly.

As you say, helping the disadvantaged with financial matters is much more complicated than energy tariffs, but that is another problem to be addressed.

Member
D Clarke says:
22 February 2013

I worked for a distribution company and was made redundant in the effort to keep costs down, yes we were paid well for working in all weathers, bank holidays 24/7 I think the public forget how much money it costs to maintain the electrical infrastructure. Everyone expects power to be there at the touch of a button but forget how the aging network needs maintaining, but at least we have the power when we need it ….. at the moment.Unless the public allow the industry to build new power stations, in a couple of years, expensive bills bills will be a thing of the past, because supplies will be disconnected on a rota basis due to a lack of generation capacity. Wholesale prices will continue their upward trend, it’s a finite resource like petrol, better looking at a wind farm etc than sat in the dark.

Member

I well remember the rota power cuts in the 1970s, but younger people may not appreciate how disruptive they are and how dependent we are on services. It is a credit to those working electricity, gas and water industries that we are able to take these services for granted. The power cuts also had a serious effect on industry.

We do need more generating capacity but we could buy time simply by cutting waste that benefits no-one.

Member

I agree with D Clarke ” it’s a finite resource like petrol”. It (gas and electricity) needs to be priced by the unit. Standing charges and two tier units need to cease as they are just two of the several confusing tactics used by the energy industry to make choosing the cheapest tariff difficult.From what I read it appears that quite a lot of folk have still never switched supplier.This is evidence that switching is too difficult and so they to bother with it.

Member

Dave – I have recently been discussing energy prices with friends and found several who have never switched supplier. One is concerned about that she might have to use direct debits and have to manage her account online. Despite that, she manages an extensive portfolio of shares very successfully and copes with tax, etc. I have known some elderly people who did not even know that it is possible to change suppliers.

I switched years ago, so I know it is not difficult, but only last month did I decide to look again for a better deal. I’m lazy with financial matters because I find them boring, unlike my late father who had a fascination with such things. I have helped others to switch in the past and will do it again. It would be great to be able to just look at a list of prices and see which is the best for me and anyone else living in the same area.

Member

Which? is misguided in this campaign. In general prices should follow the underlying cost structure. So there is, in reality, a fixed cost of supplying energy to a property, so this is best reflected in either a standing charge or a higher price for the first kWh (which amounts to the same thing).

The current tariffs may be complicated but they reward people who care enough about their energy bills to shop around and penalise people who do not. This is just like any other market. The bizarre result of Which’s campaign will be that its own members will pay more for energy in future, assuming that Which members in general are more savvy consumers than the population at large, and are on better tariffs than average. Simplifying and unifying tariffs will erode the benefits of shopping around. This is a phenomenal own goal.

Member

jak

I have copied this from the Charity Commission’s website. Sorry for the capitals – I am not shouting: “WE AIM TO EMPOWER CONSUMERS TO MAKE INFORMED CHOICES ABOUT GOODS AND SERVICES. WE ALSO AIM TO CHANGE THE WAY MARKETS WORK TO ENSURE THEY ARE FAIR AND WORK IN THE BEST INTERESTS OF CONSUMERS.”

I think you may have misunderstood the role of Which?. I believe it exists to serve the interests of consumers in general, and members’ subscriptions help to support its work. I am not sure where you have got the idea that Which? is there just to support the interests of its members.

Member

wavechange

Not entirely true. Think of the ‘Big Switch’ exercise where Which negotiated a favourable tariff for members who joined. Where do you think the savings were paid from? – the less favourable tariffs of other people (ie non-members). Tariffs are a zero sum game. If the variance between different tariffs is reduced and tariffs homogenised, there will be a similar number of winners as losers.

At present the market rewards people who put the effort in to calculate their consumption and compare tariffs. It penalises those who do not. I can’t see why this is seen as unfair as it is just like any other goods. We don’t stop Tesco selling baked beans cheaper than Sainsburys (say) on the basis that the people who go to Sainsburys are paying over the odds.

The fact is, anyone who currently makes an effort to manage their energy suppliers will lose out. That seems a very strange result for a consumer organisation to have achieved.

Member

The Big Switch was open to everyone, not only Which? members. We set up the Big Switch because many people had told us that they found it difficult to find the best deal among the dozens of energy tariffs on the market. Our aim was to provide a simple way for these people to save money on their bills.

In the long term, a single unit price for energy would make it much simpler for everyone to find the best deal for them.

Member

Jak – I was going to say that the Which? offer was available to everyone, but Katie has beaten me to it. I don’t think your analogy is very useful since buying baked beans is very straightforward, whereas working out the cheapest source of energy is rather more complicated. We all need to pay for energy and it’s not fair if only those who are more savvy, to use your word, get a good deal. What about the disabled and the elderly? Are you happy that they should pay more for their energy so that you can benefit from lower prices?

If you want to use your expertise to make some money at the expense of others then owning and trading shares is fare game. It is well established that it does require time and expertise and is not a form of investment suitable for everyone.

I don’t know whether your view is shared by other Which? members, but I hope that most of us want to help consumers in general.

Member

I’d certainly agree that a single unit price for energy would make it much simpler for everyone to find the best deal for them.
In fact I’d go further and campaign to get rid of standing charges. Standing charges and/or multiple price tiers reward higher users and penalize low users, and low users are usually those least able to pay what in effect becomes a higher unit price.

My argument is based on other business practices for essentials. You don’t pay an admission price as you walk into a Tesco store to cover their fixed cost, and you don’t pay extra if you only buy a couple of items. So why should you, and how is it right and fair that this should be the case, with energy

Member
Martin Wollstonecraft says:
27 March 2013

Chris Gloucester: “My argument is based on other business practices for essentials. You don’t pay an admission price as you walk into a Tesco store to cover their fixed cost, and you don’t pay extra if you only buy a couple of items.”

Have you actually been in a Tesco or other supermarket recently? You do pay extra if you do not buy multiple items. Nearly every other basic line is no longer available at the one price. If you want one of most anything in a supermarket you do pay more. Even Marks and Spencers have started the practice.

Member

The majority of items are not sold in this way, and that applies to both Tesco and M&S. Thank goodness, because it encourages waste.

Sorry, but I support Chris regarding energy prices.

Member
Martin Wollstonecraft says:
27 March 2013

I wrote every other basic line not the majority. Funny, I can no longer purchase sausages, bread, fruit juice, certain yoghurts, grapes, cooked meat, pizza, boil in a bag kippers, minced beef, many fish, etc. Go to M & S – row after row after row of lines with red 3 for £6 labels.

And I am too poor to waste food.

And I was not disagreeing with Chris re energy prices – just with his supermarket basketing.

Member

Martin – You also said ‘If you want one of most anything in a supermarket you do pay more.’ 🙂

To be honest, I have not looked at M&S recently.

Anyway, I’m very much in favour of energy pricing that helps low users and encourages us to be careful with a precious reserve.

Member

I think this argument is somewhat emotive – most of us want to use as little energy as possible. However because of housing type, family situations, medical needs for example however good we are at minimising waste, we end up with a diversity of annual bills. it is nothing to do with whether we are poor or rich, whether we are wasteful or not, it is the situation we are in. Energy bills should be fair to all.

Member

Most people may want to use as little energy as possible, but some put in very little effort. I could give you any number of examples, though this is off-topic enough. There is nothing fairer than everyone paying the same price per unit.

If there are cases of genuine hardship we have ways of supporting them. If I’m not mistaken, you have made this point in another context.

Member

Ofgem’s latest report is useful in outlining its approach to a range of tariffs. Their comment re standing charge also is worth considering to give a balanced view to this key topic. No single solution is being imposed on consumers – they are left with choices.
At some point when smart meters are more widespread I would think energy companies may charge different rates at different times of the day (more so than just the limited current economy tariffs), to help even out the demands on the system, and to help avoid having to build excessive capacity to handle peak demand. There would presumably be some incentives for us to use energy at cheaper times, where that is possible. So tariffs may not be simple, but if we want to minimise our bills then that may be the penalty. We would not want to criticise peoiple making use of that, would we, any more than we would currently criticise people getting cheap electricity on Economy 7 for example?

Member

People (and industry) might as well benefit from cheaper electricity when generators have to be kept running. I suggested variable pricing according to demand and availability in an earlier Conversation. What consumers need to know more than anything else is the peak price they will be charged and anything less is a bonus.

Smart meters have been a very controversial topic on W?C. Some of the criticism results from the thought of introduction being imposed on us (as with low-energy lighting), but no-one can fail to be concerned about the estimated cost of the roll-out. There might be cheaper ways of benefitting from lower cost electricity and we did not need smart meters to use Economy 7.

Member

Martin,

Rubbish, you cannot compare buy one get one free offers, or bulk packs of toilet rolls with multi tier energy tariffs.

If you go to Tesco and buy a few general grocery item or many there is no multi tier pricing and Tesco don’t ask for any standing charge as you walk in.

So energy suppliers should’t either.

Member

wavechange – so why not regulate every market? Take home contents insurance. There’s massive differences in premiums between different companies. The sums of money involved are large (in some cases higher than electricity bills) and the process of getting quotes is a lot more complicated and time consuming than choosing an energy supplier. Is Which campaigning for insurance companies to offer a single price? No – Which encourages people to shop around. (And disabled and elderly people also have home insurance).

Now to quote from ‘Switch with Which’ – “We understand that our customers have different priorities when comparing energy suppliers. For many, getting a cheaper deal is a top priority but others may also be interested in green energy, loyalty schemes, different payment methods or the customer satisfaction ratings of energy suppliers. Whatever your gas and electricity preferences, Which? Switch will recommend the best energy tariff for you.”

So at the same time as acknowledging customers’ need for diversity, Which is trying to remove it. In no other area does Which try to prevent a market from offering diversity. At present the energy companies compete for my custom with a diverse range of tariffs. I just do not see the case for restricting choice.

And finally, sites like uswitch and Switch with Which are not difficult to use. If such sites didn’t exist there would be a problem. But they do exist, and it is perfectly simple to switch suppliers. It may take a little time but it doesn’t require expertise.

Member

Insurance is a little more complicated, Jak. Premiums are based on risk and probably past records of claims. I know that Which? is concerned about the fact that existing customers are sometimes charged higher renewal premiums and are forced to either accept them or negotiate a better deal.

If you are not concerned about the disabled and elderly, what about those who don’t own or use computers? Perhaps you could help your neighbours find the cheapest source of energy.

Your original post suggested to me that Which? members should be elitist and selfish. I hope that I misunderstood you. 🙂

Member

Consumers have a key role to play in driving competition between energy suppliers and keeping prices low. When more consumers search, more firms will offer better deals to attract them the average price in the market falls. Standardising the structure of suppliers’ prices so that consumers only have to look at the unit rate in order to check the price of their energy offers, in our view, the best chance of encouraging as many consumers as possible to engage with the market.

Despite having been around for many years, price comparison services are only used by a minority of (generally wealthier) consumers. We believe that a single unit price will maximise the range of consumer media – newspapers, magazines, suppliers’ websites, digital teletext – in which accurate and meaningful energy prices can be communicated to consumers without the need for them to provide information about their usage and current tariff that may be difficult to find or understand.

At a more fundamental level, we also consider that the energy market is different to other sectors, such as home insurance, where consumers who invest time shopping around may get a better deal than those who don’t. Ultimately, consumers have a choice whether to buy home insurance. If they don’t like the buying process and the way that offers are marketed they can choose not to buy the product. While we wouldn’t recommend it, not having insurance wouldn’t stop a consumer living in their home.

Energy, on the other hand is a service that – at least in terms of the provision of light, heat and hot water – is essential for modern life. Consumers cannot ‘opt out’ of the energy market if they don’t accept the way it is sold at present. As such, we do not believe that our view on how best to enable choice in the energy market contradicts our view on how this should be done in other markets.

Member

More choice is good. I don’t understand what is wrong with using a comparison site to switch when it is no extra cost to the customer.

What needs to be made simpler is the way the results are organised and how they are presented to those who want to switch tariffs.

With so many suppliers, even if each had only four energy tariffs for each fuel (like Mr Cameron is proposing) it would still make shopping around without the use of a comparison site quite a task.

Standing Charge and non Standing Charge tariffs further complicate things.

Personally, I think it’s easy to switch at the moment. Let the energy companies have as many tariffs as they think they need and leave it to the comparison sites to do all the hard work for the customer.

Regarding not having access to the internet or a computer, some sites have a telephone number, you can call (like yoursuresave.com) and they will conduct an energy comparison over the telephone for you.

Member

Thanks for making the point that price comparisons can be made using the phone, Alan. I had not appreciated this. It would be interesting to have a breakdown of use of these services and why they are only used by a minority of consumers, as James says.