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Why an energy price cap could leave you out of pocket 

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Written by: Adam Lewis
04/05/2017
The introduction of a rumoured energy price cap could see customers miss out on £200 of additional savings, according to new research.

According to MoneySuperMarket, the price cap which is widely rumoured to feature in the Conservative Party general election manifesto, could mean the end of cheap fixed rate energy tariffs.

The price comparison site said last year alone its cheapest deals saw hundreds of thousands of customers save an average £324 on their energy bills.

It argues that while a price cap could bring bills down by £100, that remains £200 less than households could save by switching from an expensive standard variable tariff to a cheaper fixed rate deal.

Stephen Murray, an energy expert at MoneySuperMarket, said for customers who have the ability to switch, an energy price cap would be a disaster.

“Industry statistics tell us that around two thirds of UK households are languishing on expensive ‘standard’ tariffs, with many paying quarterly. Savings for these customers are on average over £300, or 25% of their bill, yet many still do not switch.

“One of the ‘favoured’ suggestions – a relative price cap – is that suppliers can only have 6% differential across all their tariffs, yet rhetoric suggests customers will see this as an incentive to switch! That looks optimistic at best.

“This is not a Big Six issue as many believe. A growing number of emerging and challenger suppliers have significant price differentials across their tariff portfolio and a cap would simply push many cheaper tariffs out of the market, resulting in higher prices.

“The energy market is working better than many people give it credit for. There is more choice for consumers, more innovation by suppliers and an effective switching industry with 50 suppliers to choose from and huge savings to be made. A price cap, whether relative or actual, will lead to many of the best deals disappearing, prices finding a higher level and a growing market of disengaged customers.”

Murray said that instead of bringing in a price cap, the government should spend some money raising awareness of switching and “leave the mechanics of an increasingly vibrant and competitive market well alone”.

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