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Government publishes draft energy cap bill

Cherry Reynard
Written By:
Cherry Reynard

Energy regulator Ofgem has said it will need to wait for legislation to be passed before it can take action to cap pricey standard variable tariffs.

Draft legislation giving energy regulator Ofgem the power to cap standard variable tariffs has been published by the government. The cap will last until 2020, and Ofgem will have the power to extend it to 2023 if necessary.

This is designed to benefit the 12 million households who remain on providers’ standard variable rates, which can cost far more than the cheapest deals.

However, the legislative process could take up to 12 months, meaning a cap on bills for this winter is unlikely.

Until then, Ofgem’s prepayment safeguard tariff will be extended to one million more low income households. It also urged suppliers to act quickly to move consumers onto better value deals.

At the Conservative Party Conference this month, the Prime Minister said the government will take action to fix the broken energy market and bring an end to ‘rip-off’ charges. The move will, when implemented, save households £120 a year, according to the regulator.

In the meantime, 2.6 million households are heading into winter in debt to their energy supplier, owing a collective £318m, according to research from uSwitch.com. One in 10 bill payers are facing winter already owing their supplier an average of £121, an increase of 9% compared to the same time last year.

Households that pay by direct debit will often build up credit over the summer months to provide a buffer that can cover increased energy as the weather gets colder. However, if they have a debit balance, it means their level of debt is only likely to increase over the winter.

The problem may have been compounded by this year’s unseasonably cold August, when uSwitch revealed that three in 10 Brits – the equivalent of over eight million households – had already turned on their central heating.

Almost a third (31%) of those in debt are planning to pay it off by increasing their monthly direct debit, while a fifth (21%) expect to pay it off in a lump sum. One in three (28%) have no plan in place for repaying what they owe.

uSwitch said customers in debt to their supplier by less than £500 are usually still able to switch, but they should still devise a manageable repayment plan. Debt charities such as StepChange are on hand to provide advice and guidance for people experiencing financial difficulties.

Claire Osborne, energy expert at uSwitch, said: “We’re only just into autumn but already millions of households are in debt to their energy supplier. Households have suffered a barrage of price rises this year but they can turn the tables on the energy companies by voting with their feet.”