The Government has instructed energy companies to ensure customers on fixed tariffs also receive the £150 reduction to household bills unveiled in the Budget. Chancellor Rachel Reeves announced measures to drive down energy costs and alleviate the cost of living burden, with £150 being slashed from the typical household bill from April.
Ms Reeves stated she would achieve this by abolishing the Energy Company Obligation (Eco) scheme brought in by the Conservatives while in power, which she argued had imposed £1.7 billion annually on household bills. On Wednesday, Energy Secretary Ed Miliband penned a letter to energy companies urging them to guarantee that customers on fixed energy tariffs receive the reduction.
A fixed energy tariff ensures a household’s unit rates and standing charge remain constant throughout the duration of the contract agreed with the provider – typically lasting a year or more. Those on standard variable tariffs face fluctuating rates as wholesale market expenses paid by the supplier rise or fall and are not restricted to a specific timeframe.
In his correspondence, Mr Miliband said: “This Government has made a clear commitment to cut people’s bills and help ease the financial pressure on millions of families, as we know energy costs cause such anxiety for many people, and that is why we are acting now. As we move forward, we want to set out our clear expectation that every single penny of our intervention at this Budget is passed on to consumers, including those on existing fixed-term tariffs.
“Around 37% of the market is now on a fixed term tariff and Government is clear that they must benefit from this reduction in bills. We urge you to continue to work with our department to ensure that this happens.
“This close, joint working will be both welcomed and reassuring for customers, demonstrating our shared commitment to fairness and consumer protection. Thank you once again for your partnership and for your efforts to ensure that these positive changes reach every household.”
The most recent Ofgem data reveals that approximately 21 million domestic energy accounts are on fixed tariffs, whilst roughly 34 million remain on standard variable tariffs.
Ned Hammond, deputy director of customer policy at Energy UK, which represents suppliers, said: “The energy industry has long called for Government action to reduce costs, having seen directly how many households are struggling to afford their energy bills and with customer debt at record levels. So last week’s Budget announcement was very welcome and suppliers will of course look to pass on the savings.
“However, it’s also expected that there will be some new costs added to bills over the coming months. While most customers remain on the price cap, where the amount they pay for energy is set by Ofgem, suppliers also set their own fixed tariffs to compete on price with each other and so have every reason to pass on any cost savings with these.”