Energy companies will face legislation if they fail to pass on cuts in the wholesale market to their customers, Chancellor Alistair Darling is warning.
Wholesale energy prices have fallen by 50% since their summer peak, yet none of the big six suppliers have reduced their tariffs. This perceived dithering has not been well received by a public struggling to keep up with the rising cost of living in the UK.
Delivering his Pre-Budget Report on Monday, Darling said: “I know there is widespread concern that the fall in the price of wholesale energy has not been reflected quickly enough in reduced household bills.
“I can tell the House that [energy regulator] Ofgem is to monitor price changes and publish quarterly reports detailing the link between wholesale and retail prices.
“Alongside this, if sufficient progress is not made in the next few months in closing unfair gaps in pricing between payment methods – the government will use statutory powers to end unjustifiable pricing differentials.”
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Winter of discontent
The Chancellor’s warning will no doubt be well received, and in truth any move to ensure consumers aren’t being ripped off is a good one.
However, there is one particular piece of Darling’s speech that is a cause for concern, namely that he will wait “a few months” before cracking down on suppliers.
In recent years, we have seen repeated examples of energy giants waiting until after the high consumption months to pass on price cuts, and this coming winter will almost certainly be no different. In fact, Scottish & Southern Energy has already publicly announced plans to reduce its tariffs “early next year”.
Promising to put pressure on energy giants in a bid to ensure price fairness is a good initiative, but it would be far more useful if he did so now, when households need it most.
The cynic might say that Alistair Darling is simply trying to garner a bit of good PR during these gloomy times by claiming credit for something that was going to happen anyway.
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Price lag is inevitable, to a point
As we mentioned at the start, energy prices have fallen sharply since their summer peak.
However, it is important to remember that such cuts cannot be immediately passed on. Utility giants purchase energy on the wholesale market anywhere between a few months to a year in advance, meaning there will always be lag between wholesale and retail prices.
What has so angered consumer groups is the fact that rises in wholesale prices seem to reach households quicker than falling prices, and this is the area that needs to be monitored. Simply promising to look at prices shortly after they are expected to fall will be of little benefit to the consumer.
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Minimise the winter hikes
There's no getting around the fact that households will be left paying record high prices for their gas and electricity during the winter months.
To minimise the impact this will have on your wallet, there are a few simple steps you can take. Switching energy suppliers is a good place to start, as not only will it save you money, but it will also send a clear message to your supplier that you aren’t willing to put up with their prices.
Unfortunately, with suppliers changing their tariffs so often, this does not always result in a long term savings. The best way to achieve this is to ensure you choose a supplier’s online tariff (rather than the standard tariff) and pay by direct debit.
Insulation is another handy cost saving initiative. The cost of fitting loft or wall insulation has not increased dramatically in recent years, but the sky-rocketing cost of energy means the potential savings have.
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