New legislation to cap poor value energy tariffs and save
consumers money is being introduced to Parliament later today
(Monday).
The Domestic Gas and Electricity (Tariff Cap) Bill will put in
place a requirement on the independent regulator, Ofgem, to cap
energy tariffs until 2020. It will mean an absolute cap can be
set on poor value tariffs, protecting the 11 million households
in England, Wales and Scotland who are currently on a standard
variable or other default energy tariff and who are not protected
by existing price caps.
Currently some consumers are paying up to £300 more than they
need to – this cap will help bring this overcharging under
control.
The Bill is part of a package of measures being introduced by
government to increase competition in the retail energy market
and lower prices for consumers, including the rollout of smart
meters in every household and initiatives to promote smarter and
faster switching.
Prime Minister 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.”
Business and Energy Secretary said:
“Energy prices for millions of households on default tariffs are
still too high. Our new price cap will guarantee that consumers
are protected from poor value tariffs and further bring down the
£1.4 billion a year consumers have been overpaying.”
Energy and Clean Growth Minister said:
“We are working hard to deliver an energy supply that is clean,
affordable and innovative and an energy market that delivers the
best possible value and service for energy customers. This new
legislation is a big step forward toward that goal.”
The introduction of the Domestic Gas and Electricity (Tariff Cap)
Bill comes after the Business, Energy and Industrial Strategy
Select Committee scrutinised the draft Bill as part of the
government’s work to build consensus for the cap. The Committee
backed an absolute cap and made a number of other recommendations
about the Bill in its report, which the government has accepted
in full.
In setting the cap, Ofgem will also take into account the need to
create incentives for suppliers to improve efficiency, the need
to set the cap at a level that enables suppliers to compete
effectively for supply contracts, the need to maintain incentives
for customers to switch and the need to ensure that efficient
suppliers are able to finance their supply activities. This will
make sure the cap reflects the interests of both consumers and
suppliers.
It will be in place until 2020 when Ofgem will recommend to
government whether it should be extended on an annual basis up to
2023. In line with the Committee’s recommendation, the government
will ensure Ofgem reviews the level the cap is set at every six
months while it is in place.
The Competition and Markets Authority 2016 review of the retail
energy market found that customers of the Big Six suppliers faced
a £1.4 billion a year detriment.
The latest league table from Ofgem comparing the default or
standard variable tariffs of the 10 largest energy suppliers
shows that those households who are prepared to shop around can,
on average, save around £300 from switching to the cheapest
tariffs on the market. The government is determined to tackle
this detriment, by encouraging consumers to switch suppliers and
tariffs. The introduction of smart meters will enable consumers
to see the cost of their energy usage and more easily find the
best tariff for them.
Earlier this month, one million more vulnerable consumers who
receive the Warm Home Discount were protected from higher bills
with the extension of Ofgem’s safeguard tariff cap, introduced in
2017. There are now five million households protected by this
cap. Government also announced a new consultation to give Ofgem
and DWP new powers to make it easier for vulnerable consumers to
be protected from unfair energy bills.
The cap is part of a package of measures designed to deliver the
government’s objective of clean, affordable and innovative energy
as part of the Industrial Strategy.
Notes to editors:
1. Ofgem’s league table and other reports can be found here.
2. Explainer about Ofgem’s existing safeguard tariff cap can be
found here.
3. Announcement on consultation on better data sharing between
DWP and Ofgem found here.
4. The Industrial Strategy sets out a long term plan to boost the
productivity and earning power of people throughout the UK. It
sets out how we are building a Britain fit for the future – how
we will help businesses create better, higher-paying jobs in
every part of the UK with investment in skills, industries and
infrastructure.
