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Energy price cap extended until the end of 2021

Emma Lunn
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Emma Lunn

The government says about 11 million UK households across the UK will be protected from being overcharged on their energy bills – but experts recommend switching to a cheaper deal.

The Department for Business, Energy and Industrial Strategy (BEIS) has announced that the energy price cap will be extended until the end of next year.

The energy price cap is a limit on the unit rate and standing charge that energy suppliers can charge. The cap is set by Ofgem, the energy regulator, and is reviewed twice a year.

The price cap was lowered to £1,042 a year in October.

The energy price cap only affects energy customers who are on their supplier’s standard variable rate tariff or default tariff. The aim is to stop these customers from being charged excessive prices.

The government says the cap has saved customers about £1bn, which is about £75 to £100 a year for a typical household on a default energy tariff.

An additional 4 million households with prepayment meters on default tariffs will also come under the protection of the cap from January.

Business and energy secretary Alok Sharma said: “The energy price cap has been vital in ensuring customers do not pay too much on their bills, which is why we are keeping it in place for at least another year.

“Switching energy supplier to find the best value deals is still the best way to save on bills, but this government is determined to make sure all customers are treated fairly and get the protection they deserve.”

In August, the independent energy regulator, Ofgem, recommended an extension to the cap following a review into the market. Today’s announcement follows that recommendation.

Save money by switching tariffs

Peter Earl, head of energy at Compare the Market, said: “A big problem with the price cap, however, is that since it was introduced in 2019 the number of people switching energy supplier has declined – and as a result, millions of households on standard variable tariffs are potentially paying hundreds of pounds more than they could be for an essential utility.

“There is a real risk that the British public interpret the government’s extension to the price cap as an endorsement that the cap is an affordable price to pay for energy, when it reality it should be considered the absolute ceiling that people pay.”

With millions more people at home due to widespread regional lockdowns and an increase in the number of people working from home, it is important for households to shop around for a better value energy deal to avoid a bill shock this winter.

According to Compare the Market, there are currently 191 energy tariffs on the market cheaper than the £1,042 price cap.

Natalie Hitchins, head of home products and services at Which?, said: “For many, energy bills will have significantly increased during lockdown, with the winter months set to cause them to rise even more. While the extension of the price cap will be a welcome relief for customers on standard or default tariffs, they are still likely to be paying more than they need to for their energy.

“The easiest and fastest way to cut your energy bill is to compare providers and switch to a cheaper deal. Standard or default tariffs are usually among the most expensive, and despite the price cap, could cost you hundreds of pounds a year more than the best deal available.”