More than a third of UK customers have been overpaying for their gas and electricity on a standard variable tariff (SVT) for at least three years, it has emerged.
It's estimated more than eight million customers have been on a non-prepaid SVT with one of the big six energy suppliers – British Gas, EDF, Npower, Scottish Power, SSE and E.on – since at least 2014, analysis from energy watchdog Ofgem has shown.
Between April and June this year, the average annual SVT price was at least £55 more than each of the big six's cheapest tariffs, according to data from Energylinx, a price comparison company. It means many customers are paying more than they need to.
Overall, the Ofgem data, which was published this week, showed that as of April 2017 some 14 million gas and electricity accounts (64%) were pegged to an SVT (this figure includes customers on such a tariff for less than three years).
But despite the high numbers, the watchdog says an increasing number of people are opting to switch their gas and electricity providers.
In June, there were 310,000 gas switches – the highest for this month since 2009. And although electricity switching fell slightly between May and June this year to 380,000, this was still the highest level of June switches since 2011.
What is an SVT?
An SVT is an energy supplier's 'default' tariff. The costs are variable, so the rate you pay can go up or down depending on wholesale energy costs – what suppliers pay for gas and electricity – and there are no exit fees or fixed end-date. If you're on a fixed tariff and your deal ends, you'll automatically be rolled on to your supplier's SVT if you do nothing.
The other main type of contract is a fixed tariff. As opposed to an SVT, this will last for a specified period of time, usually one or two years, and during this period you will pay a fixed amount of money for each unit of gas or electricity that you use. However, it doesn't mean your bills won't rise – that depends on your usage.
An SVT is commonly more expensive than other plans a supplier can offer. At the moment, for example, Npower is offering an SVT paid by monthly direct debit, which will cost on average £1,187 annually. But it also has a fixed-rate deal running until October 2019, which on average would be £1,099 annually – nearly £100 less a year.
What should I do to avoid ending up on an SVT?
If you're on a fixed tariff, your provider will most likely move you to an SVT when your deal expires.
The cheapest energy deals are usually found by switching. If you're in the last 49 days of your fixed-rate deal, you can switch providers to avoid a standard tariff and you can't be charged any exit fee by your current supplier. If you want to switch before this period, you might be charged a fee.
If already on an SVT, you can leave your provider whenever you want, and you won't be charged any fees.