Energy firms told to pass on £150 discount to customers on fixed tariffs

The Government has told energy firms to ensure consumers on fixed tariffs also benefit from the £150 cut to household bills announced in the Budget.

Chancellor Rachel Reeves announced she was taking action to get energy bills down and reduce the cost of living, with £150 being cut from the average household bill from April.

Ms Reeves said she would do this by scrapping the Energy Company Obligation (Eco) scheme introduced by the Tories in government, which she claimed had cost households £1.7 billion a year on their bills.

On Wednesday, Energy Secretary Ed Miliband wrote to energy firms to call on them to ensure consumers on fixed energy tariffs benefit from the cut.

A fixed energy tariff means a household’s unit rates and standing charge stays the same for the length of the contract agreed with the supplier – which tend to be a year or longer.

Those on standard variable tariffs pay changing rates as wholesale market costs paid by the supplier go up or down and are not limited to a set time frame.

In his letter, Mr Miliband wrote: “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.”

According to latest Ofgem figures, around 21 million domestic customers’ energy accounts are on fixed tariffs, while around 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.”