The proposals, which are open for consultation until 4 January, would prevent energy companies from offering more than four tariffs and automatically require them to move customers on to the cheapest deal.
Households will get to choose between a fixed rate, a variable rate and two other tariffs selected by energy companies. The aim is to ensure that fixed and variable tariff types, which account for 85 per cent of all customers, are clear and easily comparable, while also encouraging suppliers to offer more sustainable options such as green tarrifs.
It is hoped the move will help customers manage rising utility bills and make it easier for households to switch suppliers. Of the big six energy companies, all but E.ON have recently unveiled price increases.
Unveiling the proposals today (20 November) energy secretary Ed Davey says the plan builds on Ofgem’s bid to force suppliers to tell customers about the cheapest tariffs they have on offer, released last month.
He adds: “Bill payers will no longer face the impossible choice between hundreds of tariffs; each customer will have a maximum of four tariffs for gas or electricity per supplier to consider.
“For too long people have been stuck on the wrong type of energy tariff, paying more than they need to. Our new proposals will make things much clearer and easier to understand, so that bill payers can get the best deal and feel the benefit in their pockets.”
Energy companies have welcomed the proposals but argue that a balance between simplicity and innovation is needed to ensure the market continues to deliver choice for customers.
Ian Peters, managing director of residential energy at British Gas, described the proposals as “constructive”. A common approach from all suppliers will help customers make the right choice for them”, he adds.
Neil Clitheroe, chief executive of retail and generation at Scottish Power, says: “We fully support initiatives that are designed to help simplify tariffs and give customers greater understanding about their energy account. However, we remain concerned that restricting competition will not be in the long-term interests of consumers.
Industry regulator Ofgem has already been applying pressure on suppliers to limit their tariffs for the last 12 months leading to a reduction in the number of choices offered. Indeed, British Gas has pared tariffs back from 8 in January to 4 now, while E.ON has cut its deals from19 to 5 during the same period.
Energy industry experts say companies are already taking steps in the right direction toward offering simpler deals and warned that the Government’s plan could restrict competition “too much” and was not in the long-term interests of consumers.
Rhys Kealley, lead analyst at Datamonitor Energy and Utilities, says: “My only concern is that this could lead to a lack of engagement in the tariffs that are being offered by companies. You need to have innovation to stimulate demand in any market and this could lead to a dumbing down of how customers view the energy sector.
“The focus should be on educating customers and bringing them up to the level where they’re comfortable with the innovative tariffs that are on offer as well as encouraging them to use comparison sites more. The proposals seem to be doing the exact opposite of that.”
Tom Lyon, energy expert at price comparison site Uswitch, says: “Simplifying tariffs and the market for consumers is a good thing. However, we would be deeply concerned if the Government does go a leap further and insists that suppliers put all their customers on their cheapest deal – this would kill competition stone dead and could result in everyone paying higher prices in the long run.”
Prime minister David Cameron first announced plans to limit the number of tariffs last month, a move that was met with confusion from some quarters of the energy sector at the time after he was unable to explain how it would be enforced.