New law to impose absolute price cap on poor value energy tariffs

Ofgem sign

Ofgem sign

The prime minister said that the government would publish a draft bill today and that the market needed to "offer fairer prices for millions of loyal customers who have been paying hundreds..."

In the meantime, we expect suppliers to do more to get customers on poor value default tariffs onto better deals.

Prime Minister Theresa May first proposed a price cap on the energy sector earlier this year, the biggest market intervention since its privatisation nearly 30 years ago.

They argue intervention in the market does not promote competition.

More than 18 million customer accounts in Britain are now on a standard variable tariff or other default tariffs, many of which offer poor value to customers because they are priced higher than the fixed-rate deals available to consumers who actively seek them out.

Ofgem will work on extending price protection to at least a further 2 million vulnerable households for winter next year once the timing of the Government's price cap is confirmed.

The BEIS Select Committee will be asked to scrutinise the draft legislation to help build cross-party consensus on the workings of the cap as proposed in the Prime Minister's speech last week. A new scheme for this sector would protect around 1 million households next February, it said.

The Government's plans follow an announcement by Ofgem that it is extending its existing price cap for 5m vulnerable consumers this winter.

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"Today's publication of draft legislation is a vital step towards fixing that and in offering crucial peace of mind for ordinary working families all over the country".

The Government's plan to provide price protection to all households on default deals will reassure them that the price they pay reflects the underlying costs of supplying their energy.

Greg Clark, the Business and Energy Secretary, said: "The energy market is broken".

"It punishes loyalty - the independent competition authority found millions of people who are customers of the Big Six suppliers are overpaying to the tune of £1.4 billion a year".

Ofgem said that whatever was contained in the upcoming legislation, the government's price cap would not come into effect for the upcoming winter.

Will Hodson of the Big Deal branded the Big Six a "disgrace", adding that a price cap would be "welcome relief".

It will apply to anyone on a standard variable tariff, the expensive plans that customers are moved to when cheaper, fixed deals end.

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