Ofgem energy price cap will cut priciest ‘Big Six’ tariffs by £120

6 September 2018
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More than 11 million households could see their energy bills fall by £75 on average a year, after the energy regulator Ofgem unveils details of its price cap.

Ofgem says that under its plan energy companies will have to cap their default tariffs at £1,136 a year.

Overall, the price cap is expected to save consumers around £1 billion in total.

The price cap will apply to default standard variable tariffs (SVTs), the price plans offered by energy companies which are typically the most expensive.

The price cap of £1,136 is provisional and will be confirmed in November by the regulator. It will come into effect at the end of the year. It is designed to be a temporary measure – to remain in place until 2023.

The cap is based on a typical dual fuel customer paying by direct debit and aims to force energy companies to scrap excess charges for people on poor value default deals.

Dermot Nolan, chief executive of Ofgem, says: “Ofgem has made full use of the powers Parliament has given us to propose a tough price cap, which will give a fairer deal to consumers on poor value default tariffs.

“Once the price cap is in place, all households in Great Britain covered by the cap will be protected from being overcharged for their energy.”

How the cap will work

Annual energy bills in Britain have doubled over the past decade, rising by about £1,200 per household.

Figures from Ofgem show that 57% of households – around 13 million – are on standard variable rate tariffs, which are the most expensive.

Customers attracted by cheap year-long fixed tariffs end up being moved on to the pricier standard variable rate once their deal ends, unless they switch providers.

Ofgem says that consumers on the most expensive tariff of the Big Six will save around £120.

British Gas customers could save around £69 a year in total, according to Ofgem’s calculations.

Meanwhile, someone on the most expensive tariff with Scottish Power would save £121.

How much you save will depend on the level of the default tariff you are on with your supplier and how much energy you use.

There are also different levels for customers who pay for their energy by direct debit and those who pay by standard credit.

Households can do better than the price cap

Energy experts warn that the cap is still almost £300 more expensive than the cheapest deal on the market.

Richard Neudegg, head of regulation at uSwitch.com, says Ofgem is playing a “dangerous game” by saying that customers will always be paying a ‘fair’ price for their energy under this cap.

He says: “Customers are being sold a ‘cap trap’ under the guise of a silver bullet. Rather than tackling the very real challenges faced by vulnerable households, this price cap condemns energy customers to more of the same - high bills, poor service and suppliers resting on their laurels.”

According to Mr Neudegg, Ofgem’s own assessment of the proposed price cap shows that customers switching to a better energy deal who will be the ones hardest hit, with the potential for their bills to rise by up to £810 million.

He says: “There’s a very real danger that customers will feel they can now stay put rather than vote with their feet - gravely damaging competition and guaranteeing that prices stay high for all.”

Peter Earl, head of energy at Compare the Market, says the price cap will only protect UK households from the “worst excesses of standard variable tariffs”.

He says: “The price cap is only a sticking plaster and will not repair the fundamental failings within the energy market. The best way to drive down prices is to increase competition through regular switching.” 

“It is vital that the regulator, Ofgem, makes it very clear that the price cap is a temporary solution and that people will still most likely only get the best deals by shopping around for fixed tariffs.

"There is concern that the price cap will make energy more expensive. We are concerned that engaged energy shoppers will suffer, paying an inertia tax to subsidise households stuck on standard variable tariffs. This may be the great unintended consequence of the price cap.”

Finally, Stephen Murray, energy expert at MoneySuperMarket, adds: “It’s also worth noting the price cap can easily go up as well as down, so those savings aren’t even guaranteed. Don’t get lulled into a false sense of security by the political soundbites – the easiest way to bring down your bills is to go online and switch now to a competitive fixed-rate tariff.”

Comments

In reply to by anonymous_stub (not verified)

This will do nothing to make people energy concious if they are already at or above the maximum annual payment set by OFGEM. They now know that thay can use as much additional energy as they like and this won't cost them a penny. Meanwhile the rest of us will pick up the tab for their wastefulness. If OFGEM had set a maximum unit price and / or limited the differential between cheapest and dearest tariff, this would still encourage people to think about their usage.

In reply to by anonymous_stub (not verified)

It is a funny thing that when Edd Miliband put this forward it was shouted down as Marxist how time change.

In reply to by anonymous_stub (not verified)

It is my first visit, and what a most interesting and informative website....thank you.

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