Millions set to see energy bills fall
As part of the Domestic Gas and Electricity (Tariff Cap) Bill, energy regulator Ofgem is set to introduce a price cap on standard variable tariffs (SVTs) in England, Wales and Scotland.
As such, the move will help 11 million households currently on pricey default tariffs from next winter, on top of the five million vulnerable households that already come under a separate price cap.
The move should help “bring overcharging under control” as some consumers typically pay up to £300 more than they need to – £1.4bn collectively.
However, the cap is temporary and will only remain in place until 2020. Beyond this, Ofgem will need to recommend to the government whether it should be extended.
Prime Minister, Theresa 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.”
But, despite the move being a positive one for millions of people, experts said the price cap may backfire.
Right now you could save £250 by switching energy
Kevin Pratt, consumer affairs expert at MoneySuperMarket, said: “If it lulls people into a false sense of security that they are on a cheap deal, they won’t shop around, which means they could miss out on hundreds of pounds of savings every year.
“It’s also possible that energy firms will raise the cost of their cheap fixed rate tariffs to compensate for any reduction in the price of their variable rate deals. That would penalise savvy consumers who already shop around for the best-value tariffs.
“Right now, it’s possible for typical users on a standard variable rate tariff to save over £250 by switching to a fixed rate deal. That level of saving is likely to dwarf anything a cap can deliver.”
John Penrose MP said that it is a “great day” but that the cap as currently drafted “might magnify rather than solve problems.”
He said: “I’m absolutely delighted the government is bringing in an energy price cap to protect millions of loyal customers on default tariffs from rip-off energy prices, exactly as I and others have been demanding for ages.
“But we can’t rest on our laurels. The details matter too, otherwise we might magnify rather than solve problems.
“If the cap is set by a committee of regulators every six months, and wholesale prices fall, the rip-off will get worse and we will have brought in a bizarre law that embeds and legitimises rip-off prices.
“If we instead design a cap which shadows the really competitive part of the market that already gives switching customers great deals, we will be protecting loyal customers from rip-offs no matter what happens to wholesale energy prices in future.”