Deputy Prime Minister Nick Clegg announces a new scheme which will require energy companies to tell customers how to save up to £100 a year after securing a “landmark deal”.
It is believed around 70 per cent of households are paying more than they need to in energy bills due to a confusing regime of tariffs which offers customers little transparency.
But energy companies will now write to customers every year to tell them which tariff best suits the needs of their household.
It is hoped the scheme will save millions of customers up to £100 a year. The plan has been agreed after Mr Clegg secured the backing of energy firms EDF, E.ON, British Gas, Southern, Scottish Power and npower.
It follows a review into the sector by industry regulator Ofgem which suggested that the energy market works against consumers’ interests because it is so complex.
Announcing the scheme in Canary Wharf, London, today, the deputy prime minister said: “Right now, seven out of 10 customers are on the wrong tariff for their needs, so are paying too much.
“Yet people rarely switch, despite the fact some families could save up to £100 a year.
“There are currently over 120 different tariffs, making it very difficult to know where to start. That is going to change.
“As of this autumn, your supplier will have to contact you, every year, with the best tariff for your needs – and if you call them, they’ll have to offer you the best deal too.”
Mr Clegg also said energy companies were working to create special barcodes on bills that could be scanned with a smartphone to make it easier to get new quotes and switch tariffs quickly. However none of the proposed measures would alert customers of a cheaper deal with a rival supplier.
The move has been seen as an attempt by the Lib Dems to stamp their mark on the coalition government by seizing control of the energy debate, which has traditionally been their mission.
Mr Clegg added: “We have secured a landmark deal with the six big energy companies who cover 99 per cent of customers, to give customers a guaranteed offer of the best tariff for them.”
The government deserves some credit for keeping up the pressure on the "big six" over the profits they made from baffling tariffs, Channel 4 News Science Editor Tom Clarke writes. But the concessions the deputy prime minister is claiming to have won today, were coming anyway.
After years of criticism, energy regulator Ofgem has been turning up the heat on electricity suppliers. An Ofgem investigation last year exposed serious problems with the tariff system. Threatened with referral to the Competition Commission, the electricity companies promised they would sort their tariffs out.
Ofgem subsequently proposed requirements to allow other "start-up" electricity companies to enter the Big Six oligopoly as well as requiring companies to offer consumers the best tariff for them. In the face of the new regulatory requirements the power companies had little room for manoeuvre.
Consumer groups welcomed the announcement, but said that further efforts must be made by energy companies. Consumer Focus Director of Energy Audrey Gallacher said the plans were “long overdue”, but added: “While any move to help energy customers to get the best deal is welcome, it has to be the right method 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.”
The consumer group Which? welcomed the energy companies’ move to make prices more transparent. Which? executive director Richard Lloyd said:
“There is widespread distrust of the energy industry and real anger at the way it has treated its customers for many years, with consumers collectively overpaying £4bn a year for their energy by not switching to the cheapest prices… these moves to make it easier to find a cheaper deal are an important step forward at a time when so many are struggling to pay their bills.”
Climate campaigners sounded cautious welcome to the scheme, but warned that wholescale reform of the energy sector is required.
Jim Footner, head of Greenpeace’s climate and energy campaign, said: “Tackling soaring energy bills will doubtless be good news to thousands of households who are struggling to make ends meet.
“So it’s good to see Nick Clegg taking an interest in the plight of people who are feeling the pinch.
“But tinkering around the fringes of the overly gas-dependent energy sector simply won’t be enough. If Clegg wants the Lib Dems to be seen as a green champion and a friend of the bill-payer, then he’s got to take on the Big Six energy companies by reforming the industry.
“He’s got to make sure that we become far less reliant on expensive, imported gas while also backing cutting-edge, home-grown renewable energy.”
Ofgem welcomed the plans. A spokesperson added: “Our retail market review showed that the energy market is too complex and that further action is needed to make sure the market works in the interests of consumers.
“Since we have published this analysis many suppliers have admitted that they need to change their ways and some are beginning to try and address the problems Ofgem’s review identified.”