Caroline Flint, the shadow energy secretary, has reopened the war on “rip-off” energy prices by calling on the government to introduce a protected energy tariff for vulnerable customers and end £1bn of overcharging.
The tariff would be set by the regulator and target those least likely to switch tariff.
Flint pointed out that the independent Competition and Markets Authority (CMA) had said that households were being overcharged by £1bn a year, but the only action the government had taken was to write a letter the big six energy companies.
Parts of that letter sent by the energy secretary, Amber Rudd, in June were briefed to the media, but a freedom of information request to get the whole letter released, as well as the responses from the energy firms, has so far failed amid claims from the department that the letter may have policy implications.
Much of the focus over energy prices has dissipated with the fall in oil prices. Flint, who was widely praised for taking the attack to the energy firms in the last parliament, clearly feels the drop in oil prices is not being passed on.
The Labour deputy leadership contender said: “The CMA are looking at a transitional ‘regulated safeguard tariff’. I am calling on the government to back this approach and signal an end to rip-off prices.”
She added the CMA said that the big six had been making more than £1bn a year by overcharging 70% of customers who are on the standard variable tariff.
The CMA suggested in July that a transitional regulated safeguard tariff is one option to protect consumers while the energy market is fixed. This would protect so-called “sticky” customers who do not switch and are getting a bad deal from their energy company.
The CMA made its recommendation after its year-long investigation concluded millions of households were paying too much for their gas and electricity due to a lack of competition.
The groups least likely to switch are the most vulnerable, those who are on low incomes, have low qualifications, are living in rented accommodation, who are above 65 and those less likely to be engaged in the domestic retail energy markets against a variety of indicators.
The CMA research showed 35% of those whose household incomes were above £36,000 had switched supplier in the last three years, compared with 20% of those whose household incomes were below £18,000.
Flint pointed out a large number of other energy markets, especially in the United States, offer a “default tariff”. This can take a number of forms, from a reference price to a regulated tariff.
Under the regulated (or “protected”) tariff model, each supplier must offer one tariff where the price is set by the regulator and any prices changes must be approved by them. This becomes the default tariff for vulnerable consumers, or consumers who do not switch. Suppliers are, however, free to offer other tariffs at a price of their determining.
Flint said the introduction of a protected price does not equate to a return to a full price cap model for all tariffs, as it existed in Britain from privatisation until 2001. This was a form of price-cap regulation, where price rises for all suppliers and all tariffs were capped at inflation minus any expected efficiency savings.
The default tariff, by contrast, acts as a price to beat for competitors, delivering choice for those that want it while ensuring fair prices for those who do not engage. It is a hybrid model where both regulated and competitive tariffs exist, and in effecta fair price guarantee.
