Government to enforce energy price cap on ‘poor-value’ tariffs

The Domestic Gas and Electricity (Tariff Cap) Bill would allow Ofgem to limit tariffs until 2020.

Press Association
Last updated: 26 February 2018 - 1.20pm

Legislation designed to cap “poor-value” energy tariffs for 11 million British households will be introduced in Parliament on Monday, the Government has announced.

The Domestic Gas and Electricity (Tariff Cap) Bill would allow Ofgem to limit tariffs until 2020, with the option to extend the cap annually until 2023.

Prime Minister Theresa May said the Bill, which the Government hopes will become law before next winter, would “force energy companies to change their ways”.

Average standard gas and electricity bills, 2013-2017 (PA Graphics)
(PA Graphics)

A 2016 report found consumers were paying £1.4 billion a year over the odds via energy companies’ standard variable tariffs (SVTs).

Announcing the Bill, Mrs May said: “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.

“This is another step we are taking to help people make ends meet as we build a country that works for everyone.”

The idea of energy price freezes was floated by then-Labour leader Ed Miliband in 2013 amid concerns over price hikes, and was criticised by Conservatives at the time.

EU referendum
Ed Miliband floated the idea of energy price freezes in 2013 when he was Labour leader (Dominic Lipinski/PA)

Plans for a universal price cap were announced in the Conservative manifesto last year, but after the election Mrs May passed responsibility to Ofgem, which faced criticism for only coming up with proposals to protect the most vulnerable.

Frustrated by the lack of progress from the regulator, the Prime Minister announced legislation to rein in “rip-off” bills in her speech to the Tory conference in October.

A report from the Competition and Markets Authority warned in 2016 that they were contributing to £1.4 billion in excess profits to energy companies.

Business and Energy Secretary Greg Clark said: “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.”

Average standard gas and electricity bills: home v non-home suppliers (PA Graphics)
(PA Graphics)

After 2020, Ofgem will recommend to the Government whether the caps should be extended on an annual basis to 2023.

It will review the level the cap is set at every six months.

Shadow business secretary Rebecca Long Bailey said: “Today’s action, whilst welcome, will do little to comfort customers facing price hikes now after the Government delayed this Bill by over a year.

“The Government promised action on energy bills a year ago, yet energy costs are still spiralling and four million households live in fuel poverty.

“A price cap is simply a temporary sticking plaster and the Government must realise that they need to do much more to fix our broken energy market.”

A cap on the amount suppliers can charge per unit of energy had already been introduced in April 2017 for four million consumers with domestic prepayment meters in their homes.

On February 2, this was extended to a further one million households receiving the Government’s Warm Homes discount, which is targeted at vulnerable consumers, such as pensioners.

Energy and clean growth minister Claire Perry said: “We are working hard to deliver an energy supply that is clean, affordable and innovative and an energy market that delivers the best possible value and service for energy customers.

“This new legislation is a big step forward towards that goal.”

Gillian Guy, chief executive of Citizens Advice, said the Bill was “a significant step towards an energy market that works for everyone”.

She added: “Millions of loyal energy customers have been ripped off by their suppliers for too long.

“It’s essential that protections from overcharging remain in place for vulnerable energy customers after the cap is lifted.

“We look forward to working with the Government to ensure that consumers in vulnerable situations are protected in the long term.”

Lawrence Slade, chief executive of Energy UK, which represents power companies, said: “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.”

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