The Big Six energy providers have “brought the introduction of a price cap upon themselves”, the Business, Energy and Industrial Strategy (BEIS) Committee, which is made up of a cross-party group of MPs, has concluded today.
In its report on the government’s plans to introduce a standard variable (SVT) and default tariff price cap, which will be set by energy regulator Ofgem, the Committee calls on the government to protect households by introducing the cap in time for winter 2018.
It says the cap is needed due to suppliers “failing to take effective action against the overcharging for years of their customers”, and Ofgem being “too slow and reluctant to use its extensive powers to step in and protect the interests of customers”.
The report states that 12 million customers are stuck on poor-value standard variable and default tariffs, with some paying up to £300 more than they need to each year.
However, the Committee believes that the cap must be “absolute” – meaning consumers cannot be charged more than a set amount – rather than “relative” – where the standard variable tariff would not be more expensive relative to cheaper fixed tariffs.
The Committee also warns the government not to rely on smart meters to encourage switching when the cap comes to an end by December 2020.
Rachel Reeves MP, chair of the BEIS Committee, says: "The energy market is broken. Energy is an essential good and yet millions of customers are ripped off for staying loyal to their energy provider. An energy price cap is now necessary and the government must act urgently to ensure it is in place to protect customers next winter.
“The Big Six energy companies might whine and wail about the introduction of a price cap but they’ve been overcharging their customers on default and SVTs for years and their recent feeble efforts to move consumers off these tariffs has only served to highlight the need for this intervention."
Responding to the BEIS Select Committee report, Lawrence Slade from industry body Energy UK, comments: “With a record one in six customers switching last year and over 60 suppliers to choose from, the energy market is changing rapidly and has never offered so much choice. It’s vital the cap doesn’t halt the growth of competition which is helping customers to find a better deal and save on their energy bills.
“It’s also important that the cap accurately reflects suppliers’ costs, most of which are out of their direct control.”