Energy price cap legislation introduced to end ‘rip-off’ bills

26 February 2018

New legislation to cap “poor value” energy tariffs is to be introduced to Parliament today in a bid to protect 11 million households on the priciest standard variable tariffs (SVTs).

Under the ‘Domestic Gas and Electricity (Tariff Cap) Bill’, regulator Ofgem will put in place an cap on energy tariffs in England, Wales and Scotland until 2020.

The amount of the cap has to be decided, although it is expected to be set by the end of this year so that it is in place by next winter. It will then apply until the end of 2020, when Ofgem will recommend whether it should be extended on an annual basis up to 2023.

Currently, some consumers pay up to £300 a year more than they need to for their energy.

Commenting on the cap, Prime Minister Theresa May, says: “It’s often older people or those on low incomes who are stuck on rip-off energy tariffs, so today we are introducing legislation to force energy companies to change their ways. Our energy price cap will cut bills for millions of families.”

Business and energy secretary Greg Clark adds: “Energy prices for millions of households on default tariffs are still too high. Our new price cap will guarantee that consumers are protected from poor value tariffs and further bring down the £1.4 billion a year consumers have been overpaying.”

The government has also confirmed that the cap will be “absolute” – meaning consumers cannot be charged more than a set amount – something which the Business, Energy and Industrial Strategy (BEIS) Committee, recommended earlier this month.

Ofgem has already introduced a ‘safeguard’ price cap for five million vulnerable households, the majority of which use expensive pre-payment meters.

‘Price cap is not a magic bullet’

However, one energy expert believes a price cap isn’t enough to fix the energy market. Richard Neudegg, head of regulation at price comparison site uSwitchcomments: “The government’s introduction of this price cap might be well meaning but is fraught with potential unintended consequences that will need to be carefully managed.

“A price cap is not a magic bullet - the biggest danger is that it risks giving consumers a false sense of security that their bills will be lowered. In reality, consumers could save up to £300 right now by switching supplier or tariff – something that can take just 10 minutes.”

He adds: “Whatever shape the final cap might take, it won’t be enough to fix the energy market. We must ensure suppliers do more to get consumers off poor value default tariffs once and for all, while providing more targeted support for vulnerable consumers.”

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