British Gas has announced it is to scrap its standard variable tariff (SVT) for new customers by April next year.
Iain Conn, chief executive of British Gas parent firm Centrica, announced the change, saying: “We have long advocated that the end of the standard variable tariff is the best way to encourage customers to shop around for the best energy deal.”
He also said that the energy giant will be encouraging existing customers to take advantage of the development, with customers being contacted at least twice a year and encouraged to switch away.
The decision comes shortly after the Government published draft legislation that would allow the energy regulator Ofgem to cap the price of default tariffs, in a move designed to lower the cost of energy bills.
It also follows an announcement from rival energy provider E.On that customers who come to the end of its deals will no longer be automatically moved onto an SVT.
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Pricey practice
Energy firms are under pressure over SVTs because they are usually the most expensive deals providers offer. Often customers are attracted by low-cost year-long tariffs but then fail to switch once the deal ends, meaning many are shunted onto pricey standard rates.
In fact, by the end of 2017, more than 60 fixed energy deals are set to expire, according to MoneySuperMarmarket. It reports that customers who are then shunted onto a SVT could see their bills leap by as much as £301.
Because of that, it looks as if the British Gas announcement is good news for households who have faced years of growing bills. But some analysts are not celebrating the announcement just yet.
Savings and movement or smoke and mirrors?
While any development that helps customers save is welcome, especially those customers who rarely switch, not everyone is impressed just yet.
Several commentators have pointed out that although this may look like a move to help households, there are no guarantees it will do so. After all, they will still be moving onto a standard fixed term tariff and there's no word yet on what price that is likely to be. At best, it might mean the price hike is postponed but at worse the price customers pay for energy could still rise.
And GoCompare Energy says that British Gas has simply replaced its tariffs with an ‘SBR’ – a ‘slightly better rate’.
Ben Wilson from the website comments: “This is a welcome move for British Gas’s five million customers who, like two-thirds of all UK households, are paying much too much for their gas and electricity, thanks to being on innocuously named ‘standard variable rate’ (SVR) tariffs.
“But it doesn’t come into effect until April – once the peak energy usage season is over – and it’s important that customers realise that this move will not signal the end of bad deal…
“SVR tariffs act as holding pens where the energy companies keep their most profitable customers, so it’ll be interesting to see what happens to cheaper fixed deals if these cash-generating tariffs disappear altogether.”
Better savings sooner
It’s going to take some time to see what the British Gas move means for new and existing customers.
Perhaps it shows that the industry is waking up to the need to give householders a better and more affordable deal to prevent the Government taking action to force them to.
However, the message that households should be taking from all this is that they can achieve far greater savings if they act for themselves and don’t wait for providers or Government to fix it for them.
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Despite uncertainty about what the new British Gas announcement will mean in practice, it’s being widely reported that it could save customers on SVRs as much as £75 a year.
Yet most households could save far more than that by switching away from a SVT now and those savings would come into force in time for the coldest winter months instead of in spring when the weather is improving.
Comparison sites say that bill payers who find the best deal for their area and usage can save as much as £250 a year, which is far more money than new British Gas customers may be able to save from April.
It’s essential to compare a wide range of providers rather than simply switching to the next one that sends you an offer as the prices can vary hugely.
But switching can take just a few minutes, with the new energy company handling the rest.
Compare energy prices, find cheap deals
Act now
A recent survey by GoCompare showed that 85% of UK households will be forced to limit their energy use in a bid to save money this winter.
That will include leaving the heating off as long as possible, turning the thermostat down and even doing less ironing (that last one sounds like an excuse but okay).
Yet the data shows that only a fifth of people have switched in the last 12 months to get a better deal and that 12% say they have never changed energy provider. Ever.
Georgie Frost, head of consumer affairs at GoCompare, said: “In the last year, we’ve seen price hikes from all the major energy suppliers, which is only going to compound the problem for many households.
“Unless they act now, millions of people will be paying more for their energy than they need to. That’s why, as winter approaches, we’re reminding people that one of the most effective measures they can take to reduce their bills is to switch.”
Now read: How to switch energy supplier
The message is clear: don’t wait for the energy firms to fix the markets and don’t wait for the Government to force them to. Move now, today, and you could save far more than you could with British Gas’ big announcement.
Switch energy providers today at the loveMONEY energy comparison centre
What do you think? Is this a real step forward for customers or will it make very little difference overall? Have your say using the comments below.