Simplified energy tariffs still too confusing says consumer watchdog Which?

14th March 2014

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Despite recent efforts the majority of people are still baffled by energy tariffs and are unable to identify the cheapest deal writes Philip Scott.

An investigation in the energy sector by consumer watchdog group Which? has found that while the industry’s regulator Ofgem and its new rules for standardised tariffs are a step in the right direction, most consumers still find them confusing with two thirds failing to get the best rate.

As a result Which? has launched its “Fix the Big Six” campaign, calling on the Government, Ofgem, competition authorities  and the energy companies to drive forward radical reforms to fix the “broken market”.

In its latest energy tariff test the group challenged people to spot the cheapest deal using the standard tariffs across the UK’s so-called big six providers: British Gas, EDF, E.ON, Npower, Scottish Power and SSE.

It found that more than a third, at 35%, of people picked the cheapest deal when tariffs were presented in line with Ofgem’s new Retail Market Review (RMR) structure, made up of a unit rate and standing charge.

Of the rest, 31% picked the wrong tariff and 34%, either did not think it was possible to calculate or did not know how to.  Some 41% used an aid to do their calculations yet only 50% got it right.

When it ran a similar test in 2012 only 8% could pick the cheapest deal using the old-style energy tariffs, so while the RMR structure is an improvement, the latest results show that the there is more work to be done, as many people are still befuddled.

Alongside the RMR structure, Ofgem is bringing in a new system of presenting energy tariffs called the Tariff Comparison Rate (TCR). This displays tariffs based on what a medium energy user would pay for their gas and electricity only, for low and high users it’s intended to prompt the hunt for cheaper deals.

But the Which? research reveals that only 8% found the TCR display easy to understand.  In a test when people were asked to pick the cheapest deal for a very low-energy user nearly two thirds, a 64%, chose the supplier with the lowest TCR figure. However this would not have provided the cheapest deal for a very low user as there is no way of working that out using the TCR notes the research.

However the vast majority, at 81%, picked the cheapest deal when they were presented with the tariffs in the simple pricing format of a unit rate and no standing charge that Which? has championed. Less than one in 10, at 8%, picked the wrong tariff and 10% didn’t think it was possible to calculate or didn’t know how to.

Which? executive director Richard Lloyd says: “In spite of Ofgem’s tariff reforms to simplify the market, consumers are still failing to spot the cheapest deal because energy pricing remains too complicated.

“More radical changes are needed to fix the broken energy market. That’s why our Fix the Big Six campaign is also calling for a full competition inquiry, so that hard-pressed consumers can be confident that the market works well for them as well as shareholders, and that the price they pay is fair.”

As part of Which?’s campaign it is calling for among others, an increase in completion, more transparent trading and better cost controls.

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