Last updated: October 18, 2012 12:34 pm

Cameron triggers energy confusion

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Electricity pylons stretch across the countryside©Bloomberg

Consumers are often baffled by tariffs that depend on how customers pay bills, whether they choose a fixed or variable price and whether they pick an online deal

David Cameron threw the UK energy market into confusion after saying he would force suppliers to put all consumers on their cheapest tariffs, threatening a radical shake-up of the industry.

But Mr Cameron, who made the surprise pledge during prime minister’s questions, was accused of making policy on the hoof after it later emerged that the government’s proposals stop short of compulsion.

The new legislation is part of a broader attempt by the government to convince the public that it can prevent surges in the cost of living and comes after recent moves to limit imminent rises in train fares and petrol prices.

The announcement appeared to take the Department of Energy and Climate Change unawares, with officials for several hours unable to explain what the prime minister had meant.

The issue will be debated in the commons on Thursday after Labour minister Caroline Flint was granted an urgent question on energy bills.

Early on Wednesday evening the department had tried to clarify the situation, saying the government wanted to “help” people on to the lowest deal available. “Our view is that not enough people are switching at the moment, only a minority,” it said.

Ministers forced energy companies in the spring to write to customers to give them the option of switching tariffs, with only limited impact.

Consumers are often baffled by a range of tariffs that depend on how customers pay bills, whether they choose a fixed or variable price and whether they pick an online deal.

Yet the department made clear that companies would not be forced automatically to put all customers on cheaper tariffs.

Ms Flint, shadow energy secretary, said the government’s energy policy was “in total disarray”. She said: “The prime minister is making it up as he goes along.”

Energy companies were caught off guard, with one industry source describing the announcement as “Number 10 freelancing”.

Some of the strongest opposition came from uSwitch, the energy comparison website, which said Mr Cameron’s comment “has to be a slip of the tongue as it could be the death of competition”.

But one energy company, SSE, said it had long campaigned for a ban on differential pricing, which benefited some customers at the expense of many others.

The announcement came exactly one year after an energy summit at Downing Street, when Mr Cameron summoned the “big six” energy groups for a dressing-down. Yet the average household is paying 13 per cent more than a year ago, according to research by Which?, the consumer group.

Ofgem, the energy regulator, on Friday publishes new guidelines for the industry after a review that found competition in the retail market was being stifled by a combination of tariff complexity, poor supplier behaviour and a lack of transparency.

The regulator announced the review in November 2010 after finding that companies had increased their standard profit margin from some customers by 38 per cent.

One of the key proposals put forward in March last year was that energy suppliers should offer one “evergreen” tariff per payment method in a standardised format to allow customer to compare prices per unit.

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