British Gas has pledged to scrap its standard variable tariff for new customers next year, replacing it with a one-year tariff with no exit fees – but it so far can't promise the new deal will be any cheaper.
The energy giant says it will scrap its standard variable tariff (SVT), the expensive default tariff many households are put on, for customers whose fix ends after 1 April 2018.
Instead, if your fix ends and you don't choose to move to another tariff, you'll be moved to a new default 12-month tariff with no exit fees. British Gas says it's still in discussions with energy regulator Ofgem over this and so cannot say if the default will be a variable or fixed deal, or whether it will be cheaper than its SVT.
British Gas is the third of the big six suppliers to announce the end of its SVT. Earlier this year E.on revealed it is to scrap SVTs for those with a smart meter or on a fixed deal which ends, while Scottish Power has also said it plans to get rid of standard tariffs next year.
The changes follow the Government's pledge to give Ofgem the power to bring in an absolute price cap on standard variable energy tariffs.
What is a standard variable tariff?
SVTs are energy suppliers' default tariffs. If you've never switched it's likely you're on one, while those on fixed deals are automatically rolled onto this tariff once their fixed-term period expires.
The cost of an SVT is, as the name suggests, 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.
Martin: 'This could just be smoke and mirrors'
MoneySavingExpert.com founder Martin Lewis said: "British Gas is promoting this as a radical pro-consumer move. Yet in truth this could just be smoke and mirrors.
"Instead of a default standard variable tariff people move to when the deal they chose ends, it will now have a default standard fixed-term tariff. Though that could mean anything at any price.
"For example, in the past British Gas fixed-rate deals have often been set at the same price as its standard rate. If it rolled people onto one of those, that would mean no saving at all, except it would forestall a price hike for the short term.
"The good news about this though is it will hopefully lead to people doing an annual energy renewal, much like with car or home insurance. Having a point each year where you must 'renew' your tariff could encourage some to switch elsewhere, though British Gas customers are notoriously sticky."
How will British Gas's new default tariff stack up?
British Gas's new default tariff will only be for customers whose fixed deal ends after 1 April 2018. Those already on SVTs before this date won't be automatically moved to it but will instead be contacted about their rate by British Gas.
Unfortunately at the moment we don't know what the default tariff will cost – so it's hard to say if it will mean a significant saving for those who would otherwise move to British Gas's SVT.
Either way, to find your cheapest deal it's best to do a full comparison – you can do this via our free Cheap Energy Club now without waiting for the new tariff to come in.
British Gas has promised that by April next year it will have scrapped its SVT for new customers and will:
- Contact customers already on an SVT twice a year and offer better deals. It says it's already contacted SVT customers once this year and persuaded 10% to switch.
- Offer customers a choice of fixed-term tariffs at the end of their contract. It says it will offer a choice of at least two new 'competitive' tariffs when a customer's deal ends.
- Bring in "simple, no-nonsense bills" for customers. It says it's working with Ofgem to get permission to bring in simpler bills.
- Provide new offers to keep pace with technological improvements. These include an online-only tariff, and bundles combining energy with boiler servicing, or with 'connected-home' products from Hive, a provider of 'smart', energy-related technology, such as thermostats that can be controlled from a mobile.
In October Ofgem announced new rules allowing suppliers to roll customers who are coming to the end of a fixed tariff onto another fixed deal, instead of an SVT.
Suppliers can only do this if the new fixed deal:
- Does not have any exit fees;
- Is the same price or cheaper than the variable tariff the customer would have been rolled onto;
- Is similar to the customer's current tariff, for example in payment method, meter type, tariff type and duration.
'This is vital to encourage customers to shop around'
Announcing the changes today, British Gas chief executive Mark Hodges outlined steps the firm has already taken such as contacting five million customers to encourage them to switch tariffs.
He said: "But we must do more. We recognise that. That's why today we have published a series of unilateral actions and a package of proposals for radical change.
"Chief among them is our decision to withdraw the SVT which is a tariff with no end date. This is vital to encourage customers to shop around for the best deal and make informed choices about energy.
"These proposals must be given a real chance to work over the next few months and judged independently. We believe they will have a far more positive impact than a price cap. That's because price caps don't work. They have been tried a lot around the world.
"Customers actually end up with less choice. Prices cluster around the cap – look at university tuition fees – and customers can't be bothered to switch. Even the UK's own competition watchdog, the CMA, says price caps are likely to backfire."