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Energy tariff reforms 'too complex'

Government plans to simplify energy tariffs are still too complex to allow consumers to find the cheapest deal, according to a watchdog.

Which? said a survey found just three in 10 people (28%) correctly chose the right answer when asked to identify the cheapest deal using Ofgem's Tariff Comparison Rate (TCR) proposal. The consumer group is recommending that tariffs are presented in the style of a petrol forecourt display using single unit prices, claiming that 84% of those surveyed picked the cheapest deal using such a format. Two thirds of people (65%) said they preferred the single unit price model compared with 10% who preferred the TCR.

Consumers also scored the single unit format highly for ease of understanding (62%), speed of use (63%) and helpfulness (53%), Which? said. The TCR aims to allow consumers to easily compare the price of different tariffs across the market, giving them an indication of the cheapest deal based on an assumption of medium usage of both gas and electricity.

But just 4% of those who viewed the TCR told Which? that they would check their usage to make sure they had made the right choice, while 57% were not even able to find their energy bill. More than half of those surveyed (55%) had never compared their energy tariff with others on the market to check if it was worth switching, with just a quarter (24%) switching suppliers in the last two years.

Which? executive director Richard Lloyd said: "Energy prices are the biggest worry for consumers but Ofgem's current proposals will fail to help people find the best deal and could leave millions paying over the odds for their energy. You shouldn't need a maths degree to work out the cheapest energy deal but the complexity of energy pricing makes it virtually impossible for most people to make sense of the market.

"Our research shows overwhelmingly that people find it easier to spot the cheapest deal for them when prices are presented clearly, simply and consistently - just like on the petrol station forecourt. The Prime Minister should intervene again to make sure that his energy reforms work for hard-pressed households."

Energy UK, the trade association for the energy industry, said Which?'s ideas had already been fully considered by Ofgem. Energy UK chief executive Angela Knight said: "Which?'s proposal for a single unit tariff sounds simple but it's not what it says on the tin. For example, high energy users like working families with children would end up subsidising low energy users like second home owners.

"It also ignores the varying charges network companies make in different regions of the country. Those charges are set by the regulator and come through on the bill. Nor do single unit tariffs work for the new 'time of use' tariffs that allow customers to set things like washing machines to work at times when electricity is cheaper because demand is low."

In a statement, Ofgem said: "Our proposals for a simpler, clearer and fairer energy market are the most radical changes to the market since competition began. Our tariff comparison rate is only one element of a comprehensive set of reforms, which address the different ways consumers engage in the market. Ofgem's reforms would include a cap on tariff numbers to no more than four core tariffs per fuel. Companies will also be required to put their cheapest deal on bills, annual statements and other letters to customers.

"The conclusion that Which?'s approach is simpler than Ofgem's results from them testing a greatly simplified version of their own policy on customers. But they do not own up to this in what they have published. So unless they intend to prohibit discounts for payment method, dual fuel and paperless billing, their own proposals will be more complex than they suggest. Also, it is misleading to consider just one aspect of Ofgem's reforms in isolation from all the other improvements to transparency we are promoting."

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