Government Energy proposals - what does it mean to you?
21 November 2012
As consumers we have all had a fairly bad deal when it comes to gas and electricity prices in recent years. In this respect we have had an energy market full of overly complicated tariffs which most consumers simply could not fully understand and to add insult to injury the energy companies have announced huge profits year on year.
Earlier this year the current government announced that it was going to tackle the problem and that this would result in lower energy bills for everyone. Their proposals have now been published but will they work?...
What are proposals?
- Suppliers will be limited to four tariffs per fuel – four for gas and four for electricity.
- The four tariffs will include one standard variable rate tariff and one fixed rate tariff. The energy providers are free to offer anything they like in relation to the remaining two tariffs that they must provide. For example, some providers may decide to include a green tariff or a cheaper online deal. Some may even continue with Economy 7 idea (which is where you are charged a cheap rate of supply in the evening but a higher than usual rate in the date).
- While there will be a maximum of four tariffs, suppliers can offer different variants of these depending on how people pay. So they could include discounts for direct debit or a premium for pre-payment.
- The energy providers will ‘have to’ tell their customers if they can offer them a better deal than they are currently on. It has not yet been announced how this will work.
When does this take effect?
Everyone needs to know that this is currently only a ‘proposal’ and therefore that the energy providers do not have to follow the above rules yet. In fact the government have said that the new rules will not come in until mid-2014!
Will the new proposals lower energy bills?
That was certainly the aim of the government when they put these proposals together. However, the reality is that not everyone will save. Here are a few reasons why:
1. Less people will switch – many of us will therefore believe that we have the best deal already as per the governments proposals;
2. The energy providers are likely to make their best deal ‘worse’ than the deals that we currently see on the market, as they will know that they always have to put their customers on this deal;
3. Whilst reducing the amount of tariffs is a good step towards making the market less complicated for consumers, less tariffs means less deals available.
Will you still be able to switch when the proposals come in?
There is already a misconception that because the proposals say that the energy providers will be forced to always give you ‘their’ best deal that it mean’s the end of switching. This is NOT the case. This part is really important; the proposals force the energy providers to tell their customers their best deal. What is does not do, is force them to tell their customers what the best deal on the market is. With this being the case it is really important that consumers use a comparison website from time to time to check what the best deal is for them and not to simply rely on what their current provider says.
Have the proposals gone far enough?
The straightforward answer to this is NO. The fundamental issue that these proposals fail to address is the relationship between what the energy providers charge us for our gas and electricity and what the wholesale prices are (i.e. the cost to the providers). In this respect the government needs to put new regulations in place which provide consumers with the basic right to have their energy bills reduced in line with reductions in the wholesale costs of energy.
Do you need to do anything now?
At the moment nothing changes. However, you should always be searching the market to make sure that you are on the most appropriate and cheapest gas and electricity tariff, in relation to your individual circumstances.
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