British Gas owner Centrica to scrap standard variable tariffs for new customers
Centrica said the reforms would be enforced by the end of March next year.
British Gas owner Centrica is scrapping standard gas and electricity tariffs (SVT) for new customers ahead of Government plans to impose a price cap on the costly energy products.
Britain’s biggest energy supplier made the announcement as it vowed to introduce simpler bills and a new fixed-term default tariff for customers who do not shop around for the best deal once their contract finishes.
The Big Six firm said the reforms – which follow similar pledges made on SVTs by E.On and Scottish Power – will be enforced by the end of March next year.
It comes as the energy giant called on watchdog Ofgem to remove SVTs from the market to encourage more customers to switch tariffs.
While group chief executive Iain Conn recognised the need for market improvements, he said Government price caps would set the industry back.
He said: “Today we have set out the unilateral actions we will take to improve the UK energy market for our customers.
“This starts with the withdrawal of the standard variable tariff which contributes to lower levels of customer engagement.
“We also believe that further measures by Ofgem and the Government are required so that together we can create a market that works for everyone, where there is improved transparency and a fairer allocation of costs currently included in the energy bill.
“We have long advocated that the end of the standard variable tariff is the best way to encourage customers to shop around for the best energy deal.
“But we also need a fairer way to pay for the changing energy system by removing Government policy costs from energy bills.”
Britain’s Big Six are bracing for a raft of regulatory changes after the Government announced that a price cap will be imposed on poor-value energy tariffs.
Energy bills are too high and the market isn’t working for ordinary people. We will bring forward legislation to cap energy bills. pic.twitter.com/zXOj0ExLBa— Theresa May (@theresa_may) October 4, 2017
It follows an investigation by the Competition and Markets Authority (CMA), which found 70% of Big Six customers are on pricier SVTs and could save £300 by switching to cheaper deals.
Around 4.5 million of Centrica’s 8.3 million customers – or about 60% – are currently on SVTs, with 70% of profits coming from the company’s SVT customer base.
Among the reforms, Centrica said it will provide customers with a range of competitive fixed-term tariffs, with no exit fees pinned to the default – or emergency – tariff.
It will also encourage SVT customers to switch by targeting them with better deals.
Focusing on the proposed price cap, Mr Conn said if all energy companies removed the SVT then it would have “an influence on the Government’s intention to put in a price control”.
However, he insisted the reforms were not prompted by the Government’s threat to cap energy prices.
He told BBC Radio 4’s Today programme: “We have actually been working on these proposals for many months now.
“We obviously had to pause when Theresa May announced her intention to cap the market but we have now announced today a comprehensive set of actions to reform the market, starting in our case with the removal of the standard variable tariff.”
He said the Government should prohibit open-ended contracts and remove the cost of green energy costs from household bills.
Mr Conn added: “The cost of renewable policies in everyone’s bills and other Government subsidies and incentive schemes has now reached over £5 billion a year.
“It’s going to be costing next year, in our estimate, about £200 in everyone’s bill, that’s getting on for 20%.”
Average fuel bill now £240 lower because energy efficiency means people use less energy. Green costs add £108 to bills (not Centrica's £200) so customer's net gain is £132. Centrica's suggestion Government could cut £200 from bills overnight looks pretty odd. https://t.co/1qRpPDEhV9— John Deben (@lorddeben) November 20, 2017
However, Lord Deben, chairman of the Committee on Climate Change, disputed Centrica’s claim.
In a tweet, he wrote: “Average fuel bill now £240 lower because energy efficiency means people use less energy.
“Green costs add £108 to bills (not Centrica’s £200) so customer’s net gain is £132.
“Centrica’s suggestion Government could cut £200 from bills overnight looks pretty odd.”
The reforms comes amid a shake-up in the energy market, as the Big Six look set to become the Big Five after SSE and NPower reached an agreement to merge their operations to create a new UK energy supplier.
A spokesman for the Department for Business, Energy and Industrial Strategy said Centrica’s decision to end to poor value tariffs was “an encouraging first step” in making the market fairer.
An Ofgem spokesman said the firm’s proposals were a “step in the right direction”, adding: “They must lead to inactive customers genuinely benefiting from a significantly better deal, and not just a rebranded poor value tariff.”
Shares in Centrica were down 0.5% in afternoon trading on the London Stock Exchange.