No-one in their right mind would design today's energy market. It is complex, confusing and counter-intuitive. It benefits energy companies, at the expense of the British public, who are routinely overcharged by expensive tariffs. It's time for the government to force retailers to charge a single unit price.
Allow me to demonstrate the problem by asking you two questions: How much do you pay for a pint of milk? How much do you pay for a unit of electricity?
Most people know that a pint of milk costs around 50p. At the very least they know that 5p is a bargain and £5 is daylight robbery.
But when it comes to energy, only a minority of the British public understands the current tariffs on offer. A study by 'Which?' found only one-in-three people could identify the cheapest tariff when presented with prices from the Big 6 retailers.
This is hardly a surprise when you look at how tariffs are structured. For example, one provider charges customers in London 12p for each kilowatt hour plus an additional 25p standing charge each day. On the other hand, another charges 14p per kilowatt hour, plus a 15p standing charge. The daily standing charge (a fixed cost irrespective of usage) masks the true unit cost.
It's impossible to find the best deal without knowing how many units you use and reaching for a calculator or spreadsheet. Price-comparison websites have sprung up to profit from the complexity. But they are not a good solution; understanding the cost of a simple commodity should be easy.
There's no prize for guessing who benefits from these complex tariffs. Only one-in-five consumers shop around for better deals. Those who do save around £200. But four-fifths of households are missing out on hundreds of pounds in savings, helping energy companies increase profits by 500% in the last 5 years. Typically, low-income households are least likely to switch suppliers, increasing fuel poverty.
There is an alarmingly simple solution: charge a single unit price. Companies should no longer hide behind confusing tariffs; if one provider charges 20p per unit and another charges 15p, then the better deal is clear. When 'Which?' presented consumers with single-unit prices, the number who picked the cheapest deal shot up from one-in-three to 84%.
Most people can quickly tell whether a pint of milk, litre of petrol or loaf of bread is expensive or cheap. A kilowatt-hour of electricity (or gas) should be no different.
The government has the power to impose single unit prices through existing legislation. The new Energy Secretary should eliminate two-tier prices and require a single unit charge for energy. When it comes to finding the best deal, consumers will work out the rest.