The UK’s cheapest gas and electricity tariff has fallen below £800 for the first time since 2012, prompting renewed controversy over how the big six energy firms continue to charge the average household customer about £1,100 a year.
Wholesale gas prices have fallen 40% in the past two years, but the prices paid by customers who have stayed loyal to their existing provider have remained stubbornly high. Last week, energy minister Amber Rudd again called on the major suppliers to pass the falls on to consumers – it followed a letter she wrote in June – but so far she has not been heeded.
The case for significant price reductions was further made this week after the relatively small player GB Energy Supply launched its latest dual fuel gas and electricity tariff – costing an average £799 a year.
Npower, British Gas, Scottish Power, SSE, E.ON and EDF all charge customers on their standard tariff almost exactly £1,100, despite their differing costs. The standard tariff is the one to which all customers are moved when their introductory deal expires.
In recent months, several smaller energy firms,including GB, extraenergy and First Utility, have vied to be the cheapest, sending prices ever lower – to levels last seen three years ago. It has led to a two-tier market that sees those prepared to shop around for their gas and electricity paying a shade over £800 a year – a £300 a year saving over those who are unwilling or don’t want to move from a traditional supplier.
GB Energy managing director Luke Watson says the smaller firms are now providing a viable alternative to the mainstream companies of the past. “Mistrust in the big six suppliers is at an all-time high, and the fact that 10% of people are now with providers like us shows people want value for money and good service,” he says. “This is particularly true with winter approaching. We are able to offer this by limiting our operating costs and passing on those savings to customers.”
But a statistical change has also enabled the energy provider to claim it has lowered bills. The regulator, Ofgem, has cut the official typical usage figures to reflect better household energy efficiency. It means that all quoted average bills appear lower than they would have been had Ofgem not made the move.
“Ofgem has cut average consumption twice in recent years, which means that the GB Energy tariff is probably the equivalent of £900 a few years ago,” says Stephen Murray, energy expert at MoneySuperMarket. “However, this also means that the standard tariffs of the big six – at an average of £1,094 for dual fuel – also look cheaper than they were a few years ago, even though the unit prices have barely changed. The big six always claim that they have been unable to cut bills because they buy their energy up to two years in advance. But two years on, and with wholesale prices 40% lower, those excuses are starting to wear a bit thin,” he says.
Lawrence Slade, chief executive of Energy UK, which represents the energy firms, says competition is forcing tariffs to new lows practically every week. “There are many deals available which are around £130 cheaper than this time last year. Anyone shopping around today can find around 50 deals under £1,000 compared with only a handful at the same time last year. There are also many more suppliers to choose from with more than 25 suppliers offering a range of tariffs to households. Some suppliers bought their energy supplies many months in advance and it takes time for cuts to work through to bills.”
So should we all be switching to GB Energy? One thing to note about its deal is that it is a variable tariff, meaning that prices could be raised in the future. The company may not appear on comparison sites because it does not pay commission.
One of the problems small companies have is dealing with large numbers of customers who all arrive at once. Guardian Money has had few complaints about GB Energy, but plenty about rival small providers. At around £825 a year, Money recommends Ovo for those looking to ditch their big six standard energy tariff, but GB will appeal to those who are seeking the very cheapest.
