Save, make, understand money

Household Bills

Fixed price tariffs ‘trap customers on higher bills’

Fixed price tariffs ‘trap customers on higher bills’
Emma Lunn
Written By:
Emma Lunn

A report by the End Fuel Poverty Coalition has warned that customers on fixed rate energy tariffs could be paying more than necessary for their energy.

The charity’s Warm This Winter Tariff Watch report found that the energy market has 337 fixed price tariffs that are more expensive than the current Ofgem price cap of £1,834 a year. It also found that 206 tariffs will still be more expensive than the predicted January price cap – Cornwall Insight expects the January price cap to be about £1,898.

Exit fees

The charity warned that consumers on these tariffs will be paying a penalty for having fixed their energy bills, but high exit fees could result in many households feeling trapped into remaining on tariffs which now represent a bad deal.

Just one in 20 (6%) British Gas tariffs come with no exit fees – and the firm’s average exit fee is £62. Among the other main suppliers, 12% of EONs tariffs have no exit fees, 14% of EDF and 15% of Ovo’s tariffs are free of exit fees. Ecotricity, Utility Warehouse and So Energy also had small proportions of their tariffs with zero exit fees. Ecotricity charges the highest exit fees, with an average of £150.

Almost all tariffs from Good Energy, Octopus and Cooperative Energy come with no exit fees.

Unit costs

Unit energy costs have come down in recent months, but are expected to increase again in January 2024. This means customers could save money over the next 12 months if they were offered a one-year fixed tariff with unit rates and standing charges below the current price cap.

The current maximum rates under the current energy price cap for a direct debit customer are:

  • Standing Charges: Electricity 53 p/day, Gas 30 p/day
  • Unit Rates: Electricity 27 p/kWh, Gas 7 p/kWh

However, End Fuel Poverty’s analysis shows there is just one dual fuel fixed tariff currently on the market is below these levels.

Operating costs

The report also reveals that energy firms’ operating costs are making up £242 (an average of 13%) of customers’ bills.

In an analysis of firms’ operating costs, the report found that energy firms may be spending almost as much on marketing, which includes sponsoring football teams, event venues and creating TV adverts (about 11% of operating costs), as they do on operating customer contact centres (about 12% of operating costs).

Operating costs, which go into the standing charges paid by households, also consist of central overheads, such as office rents and the cost of maintaining energy meters.

The report also reveals that suppliers are now expected to make an additional £140m in profit on the nation’s energy bills over the next 12 months, thanks to changes to the Ofgem price cap which came into force on 1 October.

The new rules mean that firms now make an average £64.70 profit per customer per year, up by £4.70 per customer. The projected 12-month profits for all energy suppliers has hit £1.88bn, an increase of £140m (8%) from the previous Warm This Winter Tariff Watch report.

The predictions are in addition to any profits which firms have already made in 2023, which stand at a conservative estimate of more than £2bn.

Should you switch and fix?

A spokesperson for the End Fuel Poverty Coalition, said: “With energy prices subject to change, customers should exercise extreme caution when thinking about switching and fixing and we would call on companies to waive exit fees so people can switch easily to the cheapest tariff available.

“And while households suffer, the Government sits on its hands and refuses to introduce longer-term tariff reforms which could bring down bills and help people stay warm this winter and every winter.

“Indeed, with the Prime Minister recently halting work to improve the energy efficiency of buildings, Britain’s households will be trapped in cold damp homes for years to come.”

Fi Waters, spokesperson for the Warm This Winter campaign which commissioned the report, said: “Energy firms spending £242 per customer on operating costs adds insult to injury for UK households struggling to stay warm this winter. Customers should not be subsidising fancy headquarters, entertaining and marketing when these companies are making billions. That money should be used to end energy debt and lower bills. It’s yet another example of our broken energy system which the Government and energy firms seem to be in denial about.”