From the start of 2014 until early 2016, the price difference significantly increased between the average standard variable tariff and the cheapest tariff available in the market. This is because the price of the cheapest tariffs fell at a much faster rate than that of the average standard variable tariff. The differential peaked in February 2016 at well above £300. Since then, the cheapest tariff in the market and that offered by the six large suppliers have increased by around 26% and 38% respectively, driven in part by increases in wholesale prices. As a result, there has been a fall in the price differential relative to the average standard variable tariff for the six large suppliers. As of December 2016, this price differential had fallen to around £200.
We have recently introduced a new indicator showing the average of the cheapest tariffs from the ten cheapest suppliers in the market. The differential between this indicator and the average standard variable tariff for the six large suppliers stood at around £180 in December, compared to around £270 in October.
Relevance and further information
Tariff differentials reflect pricing in different market segments, as well as how much other suppliers are able to compete on price with the six large suppliers.
We calculate the bill values associated with the different tariff types using a ‘typical medium domestic consumer’. As of September 2015, typical consumption values for a medium consumer are 12,500kWh/year for gas and 3,100kWh/year for electricity (profile class 1). The chart includes collective switching tariffs from Q1 2016. All tariffs shown in the chart are for a dual fuel, direct debit customer.
Dual fuel refers to a situation where a customer takes gas and electricity from the same supplier.
A standard variable tariff refers to a supply contract which is for a period of an indefinite length and which does not contain a fixed term period that applies to any of the terms and conditions. It’s an energy supplier’s basic offer. If a customer does not choose a specific energy plan, for example after their fixed tariff ends, they will be moved on a standard variable tariff until they have chosen a new one. A customer can also make an active choice to select a standard variable tariff.
Tariffs with limited availability depending on customer features (for example, tariffs which are only available to new customers, also known as ‘acquisition’ tariffs, or tariffs restricted to certain regions) are excluded from the calculation to make sure that all tariffs considered are generally available to all customers across GB.
Tariffs available with white label suppliers are included in the calculation of the cheapest tariffs. White label suppliers are organisations without supply licenses that partner with an active licensed supplier to offer gas and electricity using their own brand.
To calculate the average of the cheapest tariffs from the ten cheapest suppliers we took the cheapest tariff offered by each supplier in the market (i.e. one tariff per supplier) and then ranked the tariffs in order of price. We then took the simple average of the ten cheapest tariffs in this list. This method is to ensure a cross section of suppliers is included in the calculation.