British Gas’ parent company Centrica plans to abolish its most common form of tariff – the standard variable tariff – to see off price caps threatened by the Government.
SVTs have come under fire for being a costly alternative if customers do not opt for a specific fixed-term deal.
On Monday, Centrica, Britain’s biggest domestic electricity and gas supplier, announced that it intends to phase the tariffs out, as part of a package of actions to reform the UK energy market.
It said it believes the move would deliver a fairer, more competitive and sustainable energy market and that getting rid of SVTs would be significantly more effective than further government intervention through temporary price controls in the form of caps, for example, which have been touted by the Government.
Energy bills across the UK have reportedly increase by an average of about £1,200 a year over the past decade. And regulator Ofgem said that SVTs offered by the UK’s big six energy suppliers were on average well over £300 pricier in August than the cheapest deals on offer.
“We fully recognise that the energy market can and should be improved, but further price controls will only set this back,” said Centrica chief executive Iain Conn.
“We believe more action is needed and are ready to play a leading role,” he added.
He said that SVTs contribute to lower levels of customer engagement and that withdrawing them was the best way of encouraging customers to shop around for the best energy deal.
“Politicians, regulators and energy companies acting together can do better than simply imposing a temporary cap or freezing household energy bills,” said Mr Conn.
“Working in partnership, we can create a fairer, more competitive energy market for the long term.”
Centrica said that it would proactively offer customers a choice of fixed term tariffs – with a duration of up to three years – at the end of their contract.
Customers who do not make an active decision when their tariff ends will be rolled onto a 12-month emergency or default tariff with no exit fees.
It also said that it would introduce “simple no-nonsense bills” for all customers and that it would work with regulator Ofgem to secure the permissions necessary to introduce much simpler bills as fast as possible, “which will help them to make the right choice about their energy tariff”.
All actions will be implemented no later than the end of March next year.
The news received a mixed reception from money saving experts.
Stephen Murray, energy expert at MoneySuperMarket, broadly welcomed the measures.
He said that they highlight that industry change “is much more effective than a one size fits all price cap, which could have unintended consequences such as many of best deals disappearing, prices finding a higher level and a growing market of disengaged customers”.
But Martin Lewis, founder of MoneySavingExpert.com, was more sceptical. “British Gas is promoting this as a radical pro-consumer move. Yet in truth this could just be smoke and mirrors. Instead of a default standard variable tariff people move to when the deal they chose ends, it will now have a default standard fixed term tariff. Yet that could mean anything at any price,” he said.
“For example in the past British Gas fixed-rate deals have often been set at the same price as its standard rate. If it rolled people onto one of those, that would mean no saving at all, except it would forestall a price hike for the short term,” he said.
Conservative MP John Penrose called the move a “cosmetic renaming of rip-off default tariffs”.
“This is just British Gas promising to try a bit harder to persuade customers to switch. But it isn’t enforceable, and they aren’t promising to switch customers onto deals which are competitive either,” he said.
“So there’s no guarantee how many of the 17 million households that are being ripped off will be helped, or that these new tariffs won’t gradually turn into the same old rip-off over time, with a different label on the tin.”