The PM has promised to lower energy tariffs – but will it work?

rising energy prices

rising energy pricesYesterday David Cameron promised to change the law to force energy companies to put every customer on the cheapest possible deal. But many think the plans are unworkable, and could even force prices up. So what’s going on, and what could it mean for your family’s bills?

Well this was a surprise. After years of energy price rises and soaring fuel poverty, everyone (except perhaps the energy companies) agreed that the energy market needed to change. The recent round of price increases by the six main energy firms – who between them have cornered 99% of the UK market – has sent many energy bills spiralling to a record £1,300-plus a year. That’s an increase of £200 since 2010 alone.

Of course, switching energy tariffs can knock literally hundreds of pounds off your bill, as we keep nagging anyone who’ll listen. (See our simple piece on how to switch – it’s especially worth reading at the moment.)

But because most people don’t bother to switch (or simply aren’t aware that they can) many of us are paying through the nose just to heat our homes. Hence David Cameron’s announcement yesterday.

When will energy prices start to fall, then?

As I write this, the proposal to force energy companies to put all their customers onto the lowest possible tariff is being discussed in Parliament – but details on how the government is actually going to do this are thin on the ground.

Indeed, David Cameron seemed to have taken his own government by surprise. After his initial statement, a spokesman for the Department of Energy and Climate Change said the government was now looking “at all options” – a considerably weaker line than the Prime Minister took. If you are feeling cynical it looks like the government is already crunching gears to slam this policy into reverse gear, with Labour branding the plans “chaos”.

So is Cameron’s plan workable?

Hmm. Good question. Three questions immediately spring to mind:

  • Would forcing private energy companies to put their customers onto the cheapest possible tariff actually work? The danger is that the energy firms would simply reduce the number of tariffs they offer, and put the price of the cheapest tariff up to maintain their profit margins.
  • The ‘cheapest’ tariff will be different for different people, and can change throughout the year depending on your energy usage. If it’s the responsibility of the energy company to ensure everyone is constantly on the cheapest tariff, it could be a legal minefield.
  • If it’s so simple to force private energy companies to keep their prices down to a reasonable level – why on earth has no government done this until now?

Price comparison website uSwitch has raised concerns that the policy – if it actually ever goes through – will backfire by causing energy companies to withdraw their cheapest tariffs.

Ann Robinson, director of consumer policy at uSwitch, said she thought the announcement had been a “mistake”.

“The unintended consequences would be to kill competition. Consumers will be left with Hobson’s choice – there will be no spur, no choice, no innovation and no reason for consumers to engage any more.”

The other thing to bear in mind is that even if your supplier guaranteed to put you on their cheapest tariff – you could still be getting ripped off compared to the price you’d pay with another energy supplier.

Research by uSwitch provides ample evidence for this. They found that households can already save £135 by choosing a cheaper tariff from their supplier. However, it’s possible to save up to £300 by switching to a different supplier.

A government spokesperson said: “A small minority of people are actually switching deals, therefore we need to push some of this responsibility on to the energy companies.”

Agreed – but how and when they manage to do this is another matter entirely. Right now, if you don’t want to be taken for a ride by your energy company this winter, the only thing to do is to take action yourself by seeing how much you could save by switching.