British Gas’ energy plans are no silver bullet (but this is)

It sounds like the customer is finally being put first. At least it did initially.

British Gas is to abolish its standard variable tariff (SVT) for new customers as part of its pledge to encourage them to shop around for the best energy deal.

Customers who come to the end of their deals with the energy giant will no longer be shunted over to an SVT when their better value tariffs end. Instead, they will be moved to a default tariff and encouraged to switch to a better priced deal.

The bold announcement came from Iain Conn, chief executive of British Gas parent firm Centrica, but his excited pledge which sounded like a real game-changer for customers was met with a chorus of cynical groans from industry commentators.

For a start, the change won’t come until spring next year, after the coldest months have passed. For another, it will only be for new customers, while existing clients will receive regular reminders to switch away from the SVT; reminders that British Gas acknowledges have so far only encouraged 10 per cent of customers to actually switch to cheaper deals.

The move follows the publication of draft legislation that would give the energy regulator Ofgem the authority to cap default tariffs. British Gas says it is not responding to those plans but not everyone is convinced.

On top of that, there are no guarantees this development will ensure customers are significantly better off, despite being a significant step towards encouraging greater switching and competitiveness.

Ben Wilson, spokesperson for GoCompare Energy says: “It’s important that customers realise that this move will not signal the end of bad deals – in effect, British Gas has just replaced its SVR with an SBR or ‘Slightly Better Rate’.

“SVR tariffs act as holding pens where the energy companies keep their most profitable customers, so it’ll be interesting to see what happens to cheaper fixed deals if these cash-generating tariffs disappear altogether.”

Fortunately for customers, whether they are with British Gas or another supplier, there is a silver bullet they can apply, one that can take effect almost immediately, in plenty of time for the coldest months.

A £250 silver bullet

If you decide to wait for the British Gas move or government legislation to ensure you get a better deal then you could find you’re waiting a long time.

What’s more, the actual savings made by a cap on tariffs or an end to SVTs may not be that significant; GoCompare suggests the British Gas announcement could save its customers up to £75 a year once it takes effect.

However, comparing energy providers now and switching to the best rate for your household can easily save as much as £250 a year, according to the comparison site MoneySuperMarket, and you could be banking those savings in time for Christmas this year.

That’s particularly important just now because the aggregator's figures show that more than 60 fixed energy deals are to expire before the end of the year, meaning many customers will be unceremoniously dumped back onto their provider’s standard tariff and face higher bills during the coldest months.

In fact, those moving from a competitive tariff to a standard deal could see their bills rise by as much as £301.31 a year.

The switching process really has been made simpler; you need a few minutes and ideally a copy of your latest annual energy statement. However, if you do not have that handy then most comparison websites will estimate your current charges and potential savings based on your current tariff and the size of your home.

Yet despite how simple it is to move, the majority of people will not, even though the cost of energy is causing 85 per cent of households to limit their energy use this winter to save money, according to GoCompare.

It’s a source of constant frustration to financial hacks when the benefits are so clear but customers simply don’t take them. Around two-thirds of the UK population are paying more than necessary for their gas and electricity because they don’t move off their provider’s SVR tariffs.

But there could be good reason for this inaction.

Not-so-simple switching

Customers struggle to take control of their energy costs because they simply don’t understand their bills. That’s the conclusion of a new report from the progressive policy think tank IPPR, which has called for simplified energy bills and a single tariff.

It found that just 15 per cent of customers changed gas or electricity suppliers last year and that 51 per cent of non-switchers have actually never switched. The think tank has carried out research and suggests a vastly simplified bill with a much-reduced selection of tariffs could help customers take charge of their energy costs.

Bills should include essential information but with a vastly simplified account of usage and no jargon, it argued. Essential information includes:

• What is the amount to be paid this month (period)?

• What did I pay last month (period)?

• Important numbers (customer services and the account number)

• Who do I call in an emergency? (emergency contacts)

Hywel Lloyd, IPPR associate director, said: “As the economy continues to fail to deliver shared prosperity there is a real urgency to making energy bills easier to understand so that consumers can make the most of opportunities to get a better deal.

“With so many people on standard tariffs or yet to switch, simpler bills are a part making consumers more engaged with the amount they are paying for energy. In future each energy company having a single tariff will ensure a fairer deal for the great majority of consumers.”

British Gas’s pledge to stop automatically shunting customers onto a pricier standard tariff is a welcome development. However, there is a long way to go before the majority of people benefit rather than the slim minority who switch regularly.