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The Government has instructed energy companies to ensure that the £150 reduction on household bills also extends to customers on fixed tariffs, a measure announced in the recent Budget.
Chancellor Rachel Reeves confirmed her intention to reduce energy costs and reduce the cost of living, with the average household bill set to be slashed by £150 from April.
Ms Reeves said these savings would be achieved by scrapping the Energy Company Liability (ECO) scheme, which she claimed would impose an additional burden of £1.7 billion a year on households.
Energy Secretary Ed Miliband on Wednesday formally wrote to energy companies urging them to pass on the benefits of the cuts to consumers on their currently set energy rates.
These tariffs guarantee a consistent unit rate and standing fee for the duration of the agreed contract, usually a year or more.
In contrast, tariffs with standard variable tariffs experience fluctuating rates, which adjust according to wholesale market costs paid by suppliers without any set time limit.
In his letter, Mr Miliband wrote: “This Government has made a clear commitment to help cut people’s bills and ease the financial pressure on millions of families, because we know the cost of energy causes such concern for many people, and that’s why we are taking action now.
“As we move forward, we want to make clear our expectation that every penny of our intervention in this Budget is passed on to consumers, including through existing fixed term tariffs.
“About 37% of the market is now on a fixed term tariff and the Government has been clear that they should benefit from this reduction in bills.
“We urge you to continue working with our department to ensure this happens.
“This close, joint working will be both welcome and reassuring for customers, demonstrating our shared commitment to fairness and consumer protection.
“Thank you again for your partnership and your efforts to ensure that these positive changes reach every household.”
According to the latest Ofgem figures, around 21 million household customers have energy accounts on fixed tariffs, while around 34 million are on standard variable tariffs.
Ned Hammond, Deputy Director of Customer Policy Energy UKwhich represents suppliers, said: “The energy industry has long called for government action to reduce costs, having seen first-hand 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 certainly want to pass the savings on. However, it is also expected that some new costs will be added to bills in the coming months.
“While most customers remain price capped, 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 there is every reason to pass on any cost savings to these.”