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What can the government do now to help with energy bills this winter?

Turning on the heating

It’s now three months on from the biggest inquiry into the energy market since privatisation, so as the colder weather starts to set in Which? has set out some ideas for the government to help on energy before the winter bites…

The Competition and Market Authority’s (CMA) two-year inquiry clearly revealed how the energy market isn’t working, particularly for those with prepayment meters and customers who remain on the big energy suppliers’ expensive standard tariffs.

After years of price hikes, dire customer service and falling levels of trust, it’s clear that big improvements are needed. The CMA’s proposals to try to tackle these failings will inevitably take time to test, get right and then introduce.

So the energy regulator, Ofgem, will need time and space to introduce the inquiry’s reforms. But still there’s plenty the government can do now to help those who will struggling with their energy bills this winter.

Helping energy bills

It’s time for the government to be turning up the heat on energy company bosses. With 70% of energy customers sat on poor value so-called ‘standard’ tariffs, these energy companies should be genuinely competing to win and keep their customers, getting them engaged and switching to better deals, all the while delivering a much higher standard of service.

Indeed this was one of the inquiry’s recommendations, but the energy industry shouldn’t be waiting for the regulator to force them to do it. It should be doing it now.

The government should also be holding Ofgem to account for the reforms it introduces. Which?, like many others, is sceptical about whether ideas like an energy database to share customer details and prompt switching can bring about real change.

Just introducing these remedies isn’t enough- what we need is for the regulator to explain what good consumer outcomes look like and put in place metrics to measure progress towards those outcomes.

The government should ​be pressing Ofgem to regularly set out whether the new reforms ​are succeeding and deliver​ing​ a competitive energy market​ that ​not only ​doesn’t harm consumers but actually meets ​their expectations​ of the energy industry​.

Beyond this, the government ​may want to do more to help ​vulnerable customers who won’t benefit from the protection ​that’s going to be introduced ​for prepayment meter customers. But the government must think carefully about the impact any further intervention would hav​e – further help ​will come at a cost, whether paid for by taxpayers or out of other people’s energy bills, so it must be controlled​ and not end up hurting energy customers more than it helps them​.

Next steps for energy reform

In truth, this is the last chance saloon for the energy suppliers. It’s the energy industry itself that now needs to rise to the challenge. It cannot think that it’s got off scot free from the inquiry. It showed we’re collectively overpaying £1.4bn due to a lack of competition.

So unless energy companies prove they can genuinely compete for customers and give them a better deal, there will be no one to blame for further intervention than themselves.

Do you think more can be done to improve the energy market? What more could the government do to help you with your energy bills?

Comments
Member

We’ve just invested in Air con using inverter technology with heat pump systems. Although the move was designed to keep the place cooler during the incredibly hot weeks we can get in summer, because the outside temps are now so cool the system only provides heat. It harvest the outside air and extracts the ambient heat from that.

What we both found fascinating was the amount of hot air the system produced yesterday, almost silently in production and a great deal more cost effective than using electricity or gas. The Government do provide grants for the heating aspect, but not if the system is also capable of cooling. However, they do only levy a charge of 5% VAT on the entire job. Perhaps this is an area that needs examining?

Member
mike.suttill says:
9 October 2016

You do not mention the high capital cost of the system, especially when compared to the cost of gas boilers for standard homes. The whole conversation appears to want to inflict more regulations on everyone through CMA and Ofgem through “the government” rather than fewer regulations. More regulations mean more complicated systems as everyone knows to their cost (personal and corporate tax system). People should generally be responsible for themselves and their actions. Those who cannot help themselves for whatever reason can be assisted but the majority of people are too idle to change their supplier – hence the large number on standard tariffs.

Member

I feel that the CMA skated round the edges of the problems with domestic energy costs so I am not sure why this is the “Last Chance” saloon for the energy companies. So long as we need energy there will be energy suppliers and unless they are much more heavily regulated they will continue to confuse people with complicated tariff structures, obscure bundling of products, exit penalties, and various tweaks to their terms [for example, standing charges, paperless billing] that bear no relation to the underlying economics and merely distort the unit price.

New energy companies come into the market but they are not achieving critical mass because their volume requirements are too low to compete against the major suppliers which also have massive contracts to commerce, industry, schools, prisons, military establishments, government buildings, airports, hospitals, railways, street lighting, and so on. For them domestic energy is a side-show but if any one of the smaller companies did start to encroach on the market of the Big Six they would be taken over just to eliminate the competition. I am not sure whether the government understands all this and its implications but unless these arrangements are broken up there will not be an open competitive market for domestic energy.

If the government is serious about bringing fairness into domestic energy supply it needs to demonstrate that by progressively rolling back the various levies and obligations that are loaded onto energy prices and put them where they belong – in general taxation. These levies overbearingly impact on poorer consumers and those with higher energy needs; they are a very regressive form of taxation. And much more thought needs to be given to how to help people in hard-to-heat homes that cannot easily be modified so are paying disproportionately for their warmth – it is not always a matter of choice and alternative cheaper fuels are not always available.

Member

I should have added the wasteful cost of smart metering which is clearly becoming a commercial failure as they have had to launch a very expensive marketing campaign to get people to ask for them. Consumers are paying £11 billion for this through their energy bills. Some companies are actually suggesting that having one is mandatory and that they must make an appointment now. I have no idea how they would fit one to my gas meter which is outside the house and not near an electricity supply; we wouldn’t want one anyway.

Member

The misconception is that by making everyone move from standard variable tariffs they would all save around £300 a year. These SV tariffs subsidise the cheaper ones (fixed term, fixed price) so, to maintain profitability these cheaper tariffs would then increase in cost. So let’s abolish that myth. My view would be to abolish the subsidised “fixed price” tariffs and have most on standard variable, but at a real cost. Have other tariffs – no standing charge, two tier, day/night – for those whom they best suit.

We are not overpaying by £1.4 bn. Annual profits from memory were £6-700m so clearly we cannot pay £1.4bn less.

Ofgem are currently investigating prepayment meters to get normal tariffs for those who choose to use them. Where prepayment meters are imposed on people who don’t pay their bills, then restrictions may apply. Which? could tell us about these; information is available on the Ofgem website.

Energy bills should go back to basics and reflect those direct costs associated with administering, supplying and delivering energy. The Government “taxes” added (other than vat), for “levies, environmental charges and subsidies etc) should be removed and paid for out of general taxation.

We need a single switching site that shows all energy companies and all tariffs with no commissions for switching. I’d see this run by a non-commercial organisation. Why not Ofgem?

Finally, as John says, this is not, of course, a “last chance”. We can continue trying for improvements in what is a changing industry. We have plenty of smaller suppliers who are competitive if only people want to save themselves money.

That’s my manifesto 🙂

Member

I have been reading and re-reading this paragraph from the Intro :

It’s time for the government to be turning up the heat on energy company bosses. With 70% of energy customers sat on poor value so-called ‘standard’ tariffs, these energy companies should be genuinely competing to win and keep their customers, getting them engaged and switching to better deals, all the while delivering a much higher standard of service.” Leaving aside the unnecessary words “sat” and “so-called“, what is this “higher standard of service” that is being called for? The quality and consistency of our gas and electricity does not seem to vary, it seems to be available round the clock in whatever quantities we need, we do not have to go outside and fetch it indoors in a bucket, and there is no gold-plated version for richer consumers. So I am struggling to comprehend this entire paragraph, and when I come across phrases like “genuinely competing” and “getting them engaged” I start to despair of any sense emerging on the real problems.

Member

Tabloid (political) journalism, John. I’d like facts, not rhetoric. Proposals, not gripes. From Which?, that is.

I keep hoping that they will put forward well researched, well argued cases taking help from experts when looking at how to change for the better. But that is demanding on time and expertise. Perhaps they should run their proposals through Which Connect first to see what Which? Members (who are the essential funders of Which?) think and what they might suggest before going public?

Member

Its “New Speak ” for a new age its actually normal for the new century its just part of the New Society its no different from other means of communication when looking at the “Bigger Picture ” .