Guide to standard variable energy tariffs
- A SVT is an energy supplier's default tariff - and it's typically the most expensive one
- You're likely to be automatically switched to a SVT if you haven't shopped around before your existing deal ends
- There shouldn't be an exit fee from a SVT, meaning you should be free to switch away from it at any time
- The CMA has identified customers' apathy with regard to sticking on SVTs as one of the main factors inflating prices in the domestic energy market
A standard variable rate energy tariff may perhaps more easily be described as the default price plan that your energy supplier will put you on if you fail to shop around for your gas and electricity.
It may also be called an 'evergreen' plan, and on such a deal prices could go up or down at any time subject to market conditions - and the whim of your energy supplier.
If you search for standard variable tariffs (SVTs) online you may well see their 'features' highlighted, making them appear as potentially attractive options.
In reality, though, standard energy tariffs are likely to be the most expensive price plan offered by a supplier.
If there is an advantage to a standard tariff it could be said to be its flexibility - you should expect to be able to switch from such a tariff at any time without paying an exit penalty.
If, on the other hand, you're on a fixed-rate or a capped-rate tariff and you spot a cheaper deal, it's possible that you'd face a charge if you wanted to move from your existing one.
However, apathy when it comes to switching tends to be one of the main reasons why people overpay on their energy bills, so it's certainly worth thinking about getting the cheapest deal as and when you can.
Beware of the SVT switch
While there are few benefits to being on an SVT, many people find themselves on such a deal without knowing about it.
If the introductory period on a fixed-rate, capped-rate or another sort of energy tariff comes to an end, your energy supplier will almost always automatically switch you onto its SVT - typically meaning that your bills will become more expensive.
Did you know...?
- Suppliers aren't allowed to charge exit fees when you're 49 days from the end of your tariff
To counter this, read the communications you receive from your energy supplier, which should alert you to the ending of any introductory deal.
Start shopping round for energy and prepare to switch before you get moved onto the SVT.
Read the terms and conditions of your current deal so you're aware of any early exit fees, but note that suppliers aren't allowed to charge exit fees when you're 49 days from the end of your tariff.
This should give you plenty of time before the ending of your current deal to get a new tariff in place, meaning you shouldn't have to spend any time on an expensive SVT.
Headline price cuts by energy suppliers
When you see a headline advertising a price cut by an energy supplier, you should be aware that it typically applies to the average saving that would be made by the average customer on the company's SVT.
There are a number of important things to consider when you take in such news.
Perhaps most importantly, such a cut is likely to be totally insignificant in comparison to the savings that could be made by shopping around and switching to another sort of tariff.
While such shopping around could lead you to another supplier - and there are numerous small energy suppliers to consider - that doesn't necessarily have to be the case.
Simply switching to the cheapest available tariff with your existing supplier is likely to mean significant savings when compared to that supplier's SVT.
Did you know...?
- In March 2016, the CMA said that 70% of the 'big six' energy firms' domestic customers were on SVTs and that the average customer could save over £300 by switching to a cheaper deal
You should also look out for the date when an energy supplier's price cut applies from.
It has been typical for a number of the larger energy suppliers to time their price cuts to kick in at the beginning of spring, allowing them to continue to charge at the higher rate throughout the winter months when most energy is used.
"Headline price drops are sometimes a bit of a smokescreen," said Andrew Beasley of Flow Energy.
"They often come after political pressure, are relatively small and are applied to a supplier's most expensive tariff, their standard variable, making that tariff only marginally more competitive.
"The important thing is to consistently deliver prices that are as low as possible over a sustained period, and to do that across tariffs so that customers receive a good deal both on fixed rate deals, and on any variable tariff they may lapse onto after their fixed deal ends."
CMA view on standard variable tariffs
In March 2016, the Competition and Markets Authority (CMA) said that 70% of the 'big six' energy firms' domestic customers were on SVTs and that the average customer could save over £300 by switching to a cheaper deal.
Given the scale of the problems and the potential savings on offer, we think bold measures like giving rival suppliers the chance to contact long-standing SVT customers are justified
Roger Witcomb, CMA
In its provisional decisions into how to reform this market, the CMA proposed the creation of an Ofgem-controlled database of disengaged customers who have been on an SVT for more than three years.
The plan is to then allow rival suppliers to target their marketing at those disengaged customers, although the customer would retain the right to opt out of this service.
Furthermore, the CMA said it wants to remove the rule that only allows a supplier to have four tariffs, one consequence of which could be to reduce the importance that's placed on SVTs.
"We have found that the six largest suppliers have learned to take many of their existing domestic customers - some 70% of whom are on 'default' standard variable tariffs - for granted," said Roger Witcomb, chairman of the CMA's energy market investigation, in March 2016.
"[That's] not just over prices, but with their service and quality. Yet in those parts of the retail markets where competition is working, customers are benefiting to the tune of hundreds of pounds a year by switching.
"Given the scale of the problems and the potential savings on offer, we think bold measures like giving rival suppliers the chance to contact long-standing SVT customers are justified."
By Sean Davies