Consumer watch: Power firms must now tell their customers of best deals

NEW agreement between government and energy suppliers aims to save households up to £100 a week, writes Chris Marshall

WE’VE all been caught out by an unexpectedly large energy bill, but new measures are on the way which, it is claimed, will help simplify charges and save households up to £100 a year.

Announced earlier this week, the agreement between the UK government and energy suppliers means firms will be obliged to tell people about the most suitable tariff for them and to offer it if they request it.

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But the package of measures has led to criticism that the government is not going far enough.

The “Big Six” utility companies have agreed to write to customers at least once a year to help them identify the best tariff available from within that firm and how to switch.

Some 70 per cent of households currently pay more than they need to because they are not on the best rate, while there are 120 tariffs from which to choose.

Energy providers have come under pressure to curb price rises and improve transparency as incomes are squeezed by high inflation and low wage growth.

Consumer groups have broadly welcomed the move, but said more was needed to ensure customers were receiving the best deals and prices did not shoot upwards.

“There are some good ideas here,” said Trisha McAuley, deputy director of watchdog Consumer Focus Scotland.

“For example, transferring customers to the best deal when their contract comes to an end, rather than the more costly standard tariff, is a long overdue step.”

However, there are concerns over how the firms can best communicate the changes with customers, many of whom are sceptical about fliers and adverts they receive through the post.

Ms McAuley added: “While any move to help energy customers to get the best deal is welcome, it has to see the right method being used to reach people and the benefit must outweigh the cost.

“This needs to be more than a one-off mail shot and part of a wider strategy to help people overcome the burden of having to navigate hundreds of complex tariffs to get a decent price. Unfortunately, people don’t trust energy firms and previous mail-outs have not always had the best take-up.

“Steps to make suppliers more accessible to their customers are needed so these moves could be helpful as part of wider plans. But suppliers also need to regain consumers’ trust by being much more transparent on bills and pricing and give customers who pay by cash, cheque or pre-payment meter genuine options by which they can save money.”

Think-tank the Institute for Public Policy Research (IPPR) said “comprehensive reform” of the market was needed to ensure that every consumer gets a fair deal from their energy company, not just those willing or able to switch tariff.

It said 60 per cent of consumers had never switched provider, with young, upwardly mobile people more likely to do so than poorer, older households at risk of fuel poverty.

“Our research outlines how energy companies fail to offer consumers tariffs that properly reflect the true cost of energy,” said Will Straw, IPPR associate director.

“Some households are paying £330 more than their neighbours in parts of the country. Tightening up the rules around tariffs so that the Big Six are no longer able to use their oligopoly power to price out new entrants is one key reform. Ofgem must also crack down on firms found to be breaching their rules on cost reflectivity. Transparency alone will not do the trick.”

It is estimated that as many as five million people are being unfairly overcharged for their energy use, with some paying hundreds of pounds more than their neighbours even though they use the same amount of gas or electricity.

Many consumers are being overcharged to subsidise heavily discounted, loss-leading offers for the small minority of customers who regularly switch suppliers, it is claimed.

According to the IPPR, Scottish Power was found to consistently offer the greatest differential between their standard and cheapest tariff at more than £330. Npower offered the second largest differential of up to £315, while British Gas, SSE and EDF all offered much smaller differentials of up to £126, £100 and £86 respectively.

Unveiling the new agreement, Deputy Prime Minister Nick Clegg said: “These are the kinds of changes that help people save money, that get us thinking about the energy we use, that promote the kind of thrift that is good for pockets as well as the planet.”

The agreement will also see companies printing barcodes on bills, allowing customers to scan the code on their mobile phones, linking them to the best energy tariffs.

Energy watchdog Ofgem last year accused firms of failing “to play it straight” with consumers as it unveiled a proposed shake-up of the industry.

The regulator hit out at the number of different tariffs available and called on firms to narrow the range of standard tariffs on offer.

A spokesman for Ofgem said: “Our retail market review showed the energy market is too complex and that further action is needed to make sure the market works in the interests of consumers.”

Most customers saw increases of between 15 per cent and 18 per cent in their gas bills in the autumn, while electricity bills also rose sharply, a move energy firms blamed on rising wholesale energy costs.