Cap on energy tariffs to become law in UK

UK consumers are one step closer to cheaper energy bills as legislation to cap poor value energy tariffs completed its passage through Parliament on 18 July 2018. Alongside this, the UK government has announced its flagship energy efficiency scheme, which aims to help support more low income and vulnerable consumers.

The Domestic Gas and Electricity (Tariff Cap) Bill will put in place a requirement on the energy regulator, Ofgem, to cap standard variable and default energy tariffs. The cap will tackle the amount consumers have been overpaying the ‘Big Six’ energy suppliers, which the Competition and Markets Authority (CMA) found to be an average of £1.4bn/y. Some consumers could save up to £350/y on gas and electricity bills by switching suppliers, claims the government.

The cap will be in place from the end of 2018 until 2020, when Ofgem will recommend if the cap should remain on an annual basis up to 2023. Ofgem will review the level of the cap at least every six months while it is in place.

UK Business and Energy Secretary Greg Clark says: ‘This Bill, which delivers on our manifesto promise, is a necessary intervention to protect millions of energy customers who have been stuck on poor value deals and hit by unjustified price rises for far too long. Switching will always save people money, but that doesn’t mean that customers should be punished for their loyalty.’

The government also announced that its flagship £6bn home energy efficiency scheme will be entirely focused on upgrading over 1mn low income and vulnerable households for the next three-and-a-half years. The Energy Company Obligation scheme, which requires energy companies to supply heating and energy efficiency measures, will be entirely focused on households in or at risk of fuel poverty while being expanded so that more companies will be included.

The announcements are part of a package of measures designed to deliver the government’s objective of clean, affordable and innovative energy, while tackling fuel poverty, as part of its modern Industrial Strategy. This includes the rollout of smart meters and initiatives to promote smarter and faster switching, which can also help save households money.

While welcomed by many, Jane Lucy, CEO of smart-switching service The Labrador, warns that the energy cap is not as big a win for the consumer as the government claims. She says: ‘This may not be as victorious for consumers as initially perceived. Despite being a step in the right direction, there is still a significant series of reforms required to fix the nation’s broken energy market. Firstly, this isn’t an absolute cap, as it only applies to standard variable tariffs (SVTs) and default energy tariffs. As we all know, SVTs are far from the cheapest offer, therefore not protecting consumers fully with an absolute safeguard. Consumers must always be mindful that there are better, less expensive options out there, of which, the only way to take full advantage is to switch.’ 

She continues: ‘The government brought in a price cap for prepayment about six months ago, and all that happened was some of the cheaper prepayment tariffs vanished from the market, reducing overall competitiveness and again not serving the better interest of the user. This policy is coinciding with the greater roll-out of smart meters, reinforcing the common view that they are able to deliver customer benefits more effectively. As the roll-out gains momentum and scale, the need for more customer protection as energy costs are more transparent will ease, allowing switching services to save consumers money against exploitative tariffs.’