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Would cutting big six to ‘big four’ really lower energy bills?

Critics wary of analyst’s claims that reducing competition would lower bills

energy billConsumers could benefit from lower energy bills if the big six energy suppliers were whittled down to a ‘big four’, according to one industry analyst, who claims it would generate £1 billion in savings.

According to Richard Postance, power and utility advisory leader at Ernst & Young, the fixed costs that major suppliers face total around £500 million per company – which is then passed on to consumers.

By whittling down the existing big six suppliers – British Gas, EDF, E.ON, npower, ScottishPower and SSE – to a big four, £1 billion in fixed costs would be saved and the benefits could then be passed on to consumers, he told the Telegraph.

Long-term savings?

According to Mr Postance’s calculations, this would be the equivalent of around £40 being saved on the average family’s energy bills each year, which would be a welcome reduction at a time when more people than ever before are being pushed into fuel poverty.

Though energy regulator Ofgem has proposed to boost competition in the market by limiting the number of tariffs that each company can offer – a move widely welcomed by consumers and industry groups alike – the analyst believes that this could actually have the opposite effect.

For example, it would impact major suppliers that offer white label deals similar to the arrangement between British Gas and Sainsbury’s, where the former provides energy to the latter, Mr Postance observed.

Boosting competition

“Competition only thrives if people have room to move, to make the big bets we are going to need in the future. Having fewer, but better, healthier competitors could be good for consumers,” he argued.

“Each company has systems costs, finance departments, tax departments, management teams. Having fewer companies would spread the cost out among more consumers.”

Mr Postance claimed that the key is to move away from the belief that increased competition is equivalent to more companies offering their products and services.

Unwise move

However, critics have claimed that the analyst’s words could damage the market and even create a cartel, should the big six be whittled down.

The biggest objection would come from the energy companies themselves, with no two providers likely to relinquish their grip on the market, particularly as providers are currently taking the steps to come in line with Ofgem’s market reforms to provide customers with greater clarity and fairness when comparing tariffs and switching suppliers.

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