A few weeks ago, an interesting energy tariff came through from First Utility. It was a reasonably priced one-year fix, costing on average £812 a year with what regulator Ofgem calls typical use – by no means the cheapest, but still good value.
What made it interesting was the offer of £2.50 per fuel, per month off the price – essentially a £60 discount on dual fuel over the length of the fix. This propelled it up the best-buy table, past the cheapest deal on the market (and even past our collective one-year fix).
But there’s a catch: you can only get the discount if you’re one of the two-thirds of people currently languishing – despite our nagging over the years – on an expensive standard variable tariff from one of the big six (British Gas, EDF, E.on, Npower, Scottish Power or SSE). You’ll need prove this as well – First Utility asks you to send it a copy of your latest bill within 14 days of applying to switch, or you don’t get the discount.
It’s a novel approach, and one that was, until recently, against the rules. While it incentivises people to get off unnecessarily expensive energy tariffs and save money, it also excludes a third of all households from the cheapest deal on the market.
First Utility isn’t the only one that has started doing this over the last few months. We’ve seen similar tariffs from SSE, British Gas and others. In fact, the cheapest tariff available after the First Utility deal (on average, based on typical use) right now – apart from our collective one-year fix – is from E.on, but you can’t get it if the firm already supplies your energy.
Are energy companies allowed to do this?
Technically, it’s still against the rules. In January 2014, Ofgem introduced a rule requiring suppliers to make all tariffs available to new and existing customers.
But in April this year, following the publication of the draft energy market investigation by the Competition and Markets Authority (CMA), which recommended removing the rule, Ofgem announced that it would no longer enforce it. In August, it launched a consultation aimed at getting rid of the rule by the end of the year.
Is this good news?
The CMA argues that it is. Suppliers can now target people still on expensive standard variable tariffs with very cheap deals or, if they find they’re struggling to keep customers, they can offer an exclusive deal to existing ones.
While encouraging people to get off overpriced standard tariffs is always a positive move, I’m concerned that we’ll see more cheap tariffs for new customers and very few good deals rewarding loyalty. Suppliers now have free rein to tempt new customers with cheap deals and then rely on the fact that many people will forget or won’t bother to switch again once their cheap fix is over. These people will be rolled on to that supplier’s standard variable tariff, rather than a competitor’s – good news for energy companies, not for consumers.
What’s more, you might not even be aware that you’re being excluded from what are potentially the cheapest deals. So far, most of these tariffs have not been available direct from the supplier; the only way you can get them is through comparison sites. Once you tell the comparison who your supplier is, if that company has any deals that excludes existing customers, it usually won’t show up for you when you do a full market comparison, as you won’t be eligible.
Plus, we’ve seen some feedback after we mentioned one of these deals in our weekly email a few weeks ago, and there were a lot of unhappy customers. Many people who have stayed with the same supplier, often switching internally, now understandably feel they’re being punished for their loyalty.
Should you go for one of these tariffs?
So far these tariffs have been well priced, and a few have been the cheapest on the market for a time. For the most part, they tend to be short-lived, only available for a week or two.
As they can be good deals, by all means grab them if they work out cheapest for you. But be sure you remember to switch again when the fix ends. If you don’t, you’ll be rolled on to the standard tariff for whichever supplier you’re with, and could end up paying as much as £300 a year too much.
As always, to find the cheapest deal for you, make sure you do a full market comparison. You can use our Cheap Energy Club to find the best tariff for your region and usage.