Energy companies must do more to help consumers save money on their bills, the government has said.
Prime Minister David Cameron met the UK’s largest energy suppliers and consumer groups on Monday amid concerns over spiralling gas and electricity costs this winter.
After the meeting Energy Secretary Chris Huhne said that a "substantial" agreement had been reached with the companies, but pulled back from detailing specifics.
"Obviously not everything is agreed," he said. "But I do think we have got a very substantial measure of agreement and we can go forward to this winter with some confidence that we can get people switching more."
The “Big Six” - E.ON, RWE, Centrica, Scottish and Southern Energy, EDF and Iberdrola - are under increasing public pressure over rising consumer prices. With households already squeezed by stagnant incomes and inflation - expected to touch nearly five per cent this week - gas and electricity prices will be a further drain on resources as the weather cools.
Adam Scorer, director of policy at Consumer Focus, said: “I think that whenever you get a time when ... six million households are in poverty, when energy prices have doubled since 2004, that the average energy bill is cracking up to £1,500 it’s not a market issue, it’s not a regulatory issue, it’s a political issue."
Ofgem said last week that the average dual fuel bill in the UK now costs £1,345 per year, with companies making £125 profit per customer.
The regulator said that energy companies have been failing consumers and blocking competition through a combination of complex tariffs, “poor supplier behaviour” and a lack of transparency, and that they need to simplify their price structures. Under the proposals, released on 15 October, consumers who want basic tariffs would get a fixed standing charge set by Ofgem, and standardised formats for price information would allow easier comparison of different suppliers’ rates.
It is this that Scorer said needed to be addressed. “Let’s just hammer down on the way that consumers can save money,” he said. “So paying in the right way - if there’s £200 difference between paying by cheque or by direct debit, let’s tell people that. If you’ve never switched supplier then you’re probably being taken on the highest tariff by an energy company, so let’s tell people that. Let’s tell people what free or heavily discounted insulation is available. So even if it’s only that, for the winter, that’s worthwhile.”
Caroline Flint MP, Labour's shadow energy and climate change secretary, said that the talks offered "cold comfort" to those worrying about paying their bills.
"David Cameron's only response has been to tell the public to wake up and shop around or you've only yourself to blame. This is an insult to people who are worried about paying their bills this winter and shows how out of touch this Tory-led Government is," she said.
Gillian Guy, chief executive of Citizens Advice said ahead of the summit: “This is a huge problem. We’re seeing a rush of people wanting simple, sensible advice about cutting their energy bills. That shows how far the big six have to go in making it easy to get the right deal.”
Calling for a “radical” change from past practices, Ofgem will be releasing detailed proposals to reform the energy market next month, with further regulation to break the “stranglehold of the Big Six” in the wholesale electricity market to follow in December. This is unlikely to be a rapid process, but Ofgem’s proposals last week, followed by today’s meeting, shows that there is some momentum building.
“This [meeting] is about doing probably the only thing that the government can do, which is to strengthen the regulator’s arm and pile the pressure on the companies and say, ‘look, no one believes a word you say. You’re the least trusted sector across the economy. You behave like you’re recently privatised utilities, rather than thrusting, entrepreneurial, competitive companies. You’ve got to change,’ Scorer said.”
A war of words has also developed over the apparent cost of the government’s renewable energy policies. The UK needs to invest around £200 billion to meet its tight emissions reductions targets, and Ofgem said that the cost of government energy efficiency and environmental programmes adds around £100 to the average energy bill.
Supporters say that the long-term cost will be offset by reductions in the country’s dependence on fossil fuel imports, and would mitigate against volatility and future price rises.
Pressure group Friends of the Earth (FOE) said that investments by utilities in gas generation, rather than renewables, was at the root of recent price rises, and called for an enquiry into the big six. By its own calculations, the longer term cost of “dirty” energy would be £300 on consumers’ bills, FOE said.
Others warned that remaining tied to environmental policies could jeopardise the economic recovery.
“The blame game going on around rising energy prices is not helping businesses or households facing very high energy bills. We absolutely need to improve competition in the energy market, but a policy of trying to modify price rises by exhortation is simply not credible. Worse, it hides the very real impact of the expensive renewables programme on energy prices now and, more significantly, over the next decade,” Simon Walker, director general of the Institute of Directors said in a statement ahead of the summit.
“Current policies risk locking us into cleaner and more expensive energy, when the goal should be cleaner and cheaper energy,” he added. “What may have been tolerable in an age of affluence is far less realistic today. Undermining the UK’s competitiveness through high energy costs would do no favours to either economic recovery or the environment.”