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Centrica, the largest supplier of energy to UK homes, has promised to end the expensive “standard variable tariffs” that nearly two-thirds of households pay and which the government is targeting with a proposed price cap.
The owner of British Gas, which has about 5m customers on this type of tariff, is the latest big supplier to promise action following the threat of legislation.
A draft bill to protect the 60 per cent of UK consumers on these tariffs — which are as much as £300 more expensive than the cheapest deals — was published by the government last month but is not expected to come into force until 2019.
Moody’s, the rating agency, has estimated that a price cap could cut the operating profits of the UK’s biggest utility companies by more than £1bn.
SSE and Npower, two of the other “big six” energy companies, announced in the wake of the draft bill that they would spin off and combine their UK retail businesses, reducing their exposure to this part of the market.
Centrica said it would scrap standard variable tariffs for new customers by the end of March 2018. Instead, customers who are coming to the end of a fixed-price deal will be moved on to a new 12-month “emergency” tariff unless they choose another option. Iain Conn, chief executive of Centrica, said this emergency rate would be “unattractive” but not “punitive”, to encourage customers to shop around.
Centrica also said it would contact existing customers on standard variable tariffs with the aim of eliminating them. Mr Conn said the company had informed the government of its proposals months before the draft bill was published but hinted that he hoped legislation could be avoided if all suppliers followed suit.
“If everyone removed default tariffs . . . I would think it must have an influence on the government’s intention to put in a price control,” Mr Conn said.
However, Greg Clark, the business secretary, told MPs this month that it was unlikely proposals to end standard variable rates and replace them with something “remarkably similar” would derail the government’s plans.
A spokesman for the Department for Business, Energy and Industrial Strategy said on Monday the government “will not rest” until a £1.4bn consumer “detriment” that was identified by UK competition authorities has been addressed.
The announcement on standard rates was just one of a series of UK energy market proposals from Centrica on Monday, which also included a call on the government to remove “green” and other policy costs from household bills.
Currently, the costs of subsidising renewable energy generation and schemes such as the £11bn government programme to install smart meters — devices to help households keep closer track of how much energy they are using — are included in bills. The large energy suppliers say these rising costs are among the main reasons bills are going up, although the government contests this. Centrica believes these costs should instead be met from general taxation.
If they do remain on bills, Centrica argues all 60 suppliers should have to contribute, regardless of their size. Currently, suppliers with fewer than 250,000 customers do not have to contribute to policies such as the “warm home discount”, which cuts fuel bills for poor households over winter.
“We think this non-level playing field between suppliers is going to be a real problem going forward especially if this price cap comes in,” Mr Conn said.
Despite the challenges in the market, Mr Conn insisted Centrica remained committed to supplying electricity and gas to UK households and would not be following in the footsteps of SSE and Npower.
“We are confident that we can have a sustainable and attractive business in UK energy under any of the future scenarios,” Mr Conn said, adding that the company would update shareholders in February on how it could achieve this.