Energy giant British Gas will scrap its standard variable tariff (SVT) price category by April for new customers.
It comes after draft legislation designed to lower the cost of energy bills was published by the government.
The legislation would give energy regulator Ofgem the power to cap default tariffs.
Rival energy firm E.On has already said SVTs will no longer be the default option for customers coming to the end of their existing tariffs.
SVTs are usually among the most expensive tariffs. British Gas is estimated to have about five million customers on the tariff, accounting for some 67% of its customers.
Simpler bills promised
Announcing the change, Iain Conn, chief executive of British Gas parent firm Centrica, said: “We have long advocated that the end of the Standard Variable Tariff is the best way to encourage customers to shop around for the best energy deal.”
Although the development only applies to new customers, Mr Conn said the company was keen to move all its customers off the SVT.
“We will contact all of our customers at least twice a year to encourage them to move away from the SVT,” he said.
British Gas contacted all its SVT customers in the first half of 2017, and it says that 10% switched away from the tariff.
The company has also said it will:
- Provide new offers “to respond to customers’ changing needs”
- Proactively offer customers a choice of fixed-term tariffs at the end of their contract
- Introduce a new fixed-term default tariff
- Contact customers on legacy Standard Variable Tariffs and offer them better deals
- Introduce simpler bills for all customers
- Improve customer service
Analysis: Brian Milligan, BBC personal finance reporter
British Gas’s decision to “withdraw” standard variable tariffs (SVTs) is unlikely to make much difference to most of its customers. More than two-thirds of them continue to pay for the more expensive tariff, despite cheaper alternatives, and despite numerous attempts to get them to switch.
The company itself tried to contact all of them earlier this year, and only managed to persuade 10% of them to take out a fixed-term deal. This means that the remaining five million customers can stay on SVTs for as long as they like.
British Gas has also said that fixed-term customers who fail to chose another deal will be put onto a default tariff. As yet we don’t know the detail of that tariff. Indeed it could even be a variable rate tariff: In other words, another SVT.
So this announcement confirms that the SVT is far from dead.
Mr Conn told the BBC’s Today programme that it had been working on these proposals “for many months now”.
And he denied that action had been taken because of government threats to impose price caps on the energy market.
“We have been saying for the past 18 months that we need to end ‘evergreen’ contracts – those which don’t have an end date,” Mr Conn said.
He said the new measures announced were “a comprehensive set of actions”.
“But we also need a fairer way to pay for the changing energy system by removing government policy costs from energy bills,” he added.
‘False sense of security’
But some comparison websites questioned the detail, or lack of it, in what British Gas was proposing.
Richard Neudegg, head of regulation at Uswitch.com, said: “These initiatives by British Gas have the potential to effect positive change for its customers, if it makes it easier for them to make choices about their energy.
“However, what remains to be seen is if customers rolled onto a new fixed deal with British Gas end up finding themselves on another poor value standard tariff by another name.”
Peter Earl, head of energy at comparethemarket.com, said there was a danger “that getting rid of the worst deals will lull consumers into a false sense of security”.
“Not being on the worst deal is far from being on the best one – British Gas customers will not automatically find themselves on a competitive tariff.”