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Energy price cap to save billpayers £75

Paloma Kubiak
Written By:
Paloma Kubiak

The regulator has proposed implementing an energy price cap which would save millions of households on pricey default tariffs £75 a year on average.

Energy suppliers won’t be able to charge more than £1,136 per year for a typical dual fuel customer paying by direct debit, under the proposals.

This would mean over 11 million households on poor value default tariffs could save around £75 on average – around £1bn collectively.

But the exact savings would depend on the price of the current deal and how much energy is used, whether customers have both gas and electricity and how customers pay for their energy.

According to the regulator Ofgem, a typical customer on the most expensive tariff (ScottishPower) could save over £120, while some could save just £13 a year (Utility Warehouse) if the measures are introduced.

Dermot Nolan, chief executive of Ofgem, said: “Once the price cap is in place, all households in Great Britain covered by the cap will be protected from being overcharged for their energy. Consumers can have confidence that falls in energy costs will be passed on to them and if costs increase, Ofgem will ensure that any rise will be due to genuine increases in energy costs rather than supplier profiteering.”

How good is the energy price cap?

While a welcome step by Ofgem to take greater control of the energy price rip-off, experts said the move could actually lead to customer complacency.

Stephen Murray, energy expert at MoneySuperMarket, said: “You might think Christmas has come early with the savings mooted in today’s announcement, but you’d be missing the bigger picture.

“There are over 100 tariffs available right now which are cheaper than the proposed level of the price cap at £1,136. That means switching today could save you £250 or more, and there’s no need to wait for a price cap that would actually save you on average £75.”

Murray added that the price cap can go up as well as down as Ofgem will review the level of the cap  in April and October every year.

Peter Earl, head of energy at Compare the Market, said there’s concern the price cap will make energy more expensive. “More than half of UK adults think the average cost of energy will increase post price cap, as energy companies raise the prices of their best value tariffs in order to offset the impact of the price cap. We’re concerned engaged energy shoppers will suffer, paying an inertia tax to subsidise households stuck on standard variable tariffs. This may be the great unintended consequence of the price cap.”

Ofgem expects to confirm the proposals in November with the aim of the price cap coming into force at the end of the year, staying in place until 2023 at the latest.

The move comes after Ofgem capped bills through its safeguard tariff for four million pre-payment meter households. And in February this year the regulator extended it to one million more vulnerable households on poor value default deals who already received the government’s ‘Warm Home Discount’.