How do government-led price reductions affect energy bills?

Price reductions are good news for consumers, but still fall short from wiping out recent gas and electricity price increases

Price increases will still set consumers back by close to 5% this winter

Price increases will still set consumers back by close to 5% this winter

Although price cuts are welcome at a time when more than eight in 10 households are planning to ration their winter energy use, gas and electricity prices will still have risen by close to 5% this winter.

However, suppliers are all implementing the cuts in different ways – while some have made it clear that all types of tariff will benefit, others have not. In addition, there is a difference over the timings of the cuts, with one supplier delaying passing them on to customers until spring 2014.

Future price rises?

More importantly, although suppliers are generally saying that they won’t increase prices again before 2015, there is a caveat attached which is that they can implement a hike if there is a change in wholesale prices.

In this context, switching to a fixed price energy plan remains the best way for consumers to enjoy a competitive price today while shielding themselves from price hikes in the future. Substantial savings can be made by locking in energy rates with one of the fixed price plans currently topping the ‘best buy’ table.

Those looking for extra price security are advised to select a plan without cancellation fees, allowing them to switch penalty-free should a more competitive tariff appear. This flexibility could be particularly valuable given the delay there will be before reductions are applied.

‘Bills will still be higher than they were previously’

Ann Robinson, director of consumer policy at uSwitch welcomed the news but added: “It’s important that consumers understand that even if this reduction is passed on in full their bills will still be higher than they were previously – the reduction won’t be enough to wipe out recent price hikes.

“It’s also vital that they do not walk away from this thinking that they have a cast-iron guarantee that they are protected from future hikes – they aren’t. If wholesale prices change significantly then they could still see their bills go up.”

Energy companies and price rises

British Gas, the UK’s largest energy provider, raised prices by 9.3% in November and has announced that it will reduce this figure by 3.2% due to levies being cut. The move will see energy bills for the average consumer increase by £70 instead of £123.

EDF Energy already factored the government’s decision to reduce levies into its initial price rise of 3.9% and has said it does not expect to raise prices in 2014, unless wholesale prices increase.

E.ON has yet to announce a price increase this winter but has stated that the news should “mean our customers will pay less next year than otherwise would have been the case’. An update is expected shortly.

npower announced a 10.4% price hike in October and has said it will pass on any savings as a result of lower levies onto its customers on both standard and fixed tariffs. The company has not yet released more detailed information regarding the extent of the cut, but is expected to do so shortly.

ScottishPower will bring down its original 8.6% increase in 2014, although it has yet to announce by how much.

SSE raised gas and electricity prices by 8.3% in November and has said it will reduce this figure by 4%. This will see dual fuel customers charged an extra £56 per year on average, as opposed to £106.

Woking out the price hikes

The government’s promise to cut levies on gas and electricity bills is based on two main elements.

First the subsidy aimed at helping those in fuel poverty, known as the Warm Home Discount, will be removed from energy bills. This charge was worth £12 per household and will become a public-sector liability.

The second subsidy which the government has altered is the Energy Company Obligation (ECO) scheme, which focussed on better insulating British homes. This move will see the target for reducing carbon emissions cut by 30%, the end date moved back two years and the focus shifted to cheaper types of insulation.

As a result, consumers will be charged between £30 and £35 less per year on their energy bills. In total, reductions are expected to average out at around £50 per household.

Best buy plans

Supplier

Plan Name

Price

Spark Energy

Advance 2

£1,116

Co-operative Energy

Fixed Price 31 March 2015

£1,168

Ovo Energy

New Energy + Ovo Just Reward

£1,175

First Utility

iSave Fixed v12 June 2015

£1,178

E.ON

E.ON Energy Fixed 1 Year

£1,178

npower

Price Fix April 2015

£1,202

EDF Energy

Blue+Price Promise April 2015

£1,209

Source: uSwitch.com

Based on a medium user consuming 3,300 kWh of electricity and 16,500 kWh of gas on a dual fuel tariff, paying by monthly direct debit with bill averaged across all regions.

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  • Joe

    People are so stupid do they not realize these resources belong to the people, these companies should appreciate and respect the fact we allow them to take what God give us from our planet, and make money somewhere capitalism messed up the people need to change this back around, don’t believe the rubbish they tell you about these resources running out complete crap

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