Energy Price Cap Will Come Into Effect

An energy price cap will be active by December after its bill, the Domestic Gas and Electricity (Tariff Cap) Act 2018, gained Parliamentary approval.

The bill forces fixed term and standard variable tariffs to have a price cap, which will be reviewed every six months and will stay at its initial level until 2020, when the Government may renew it.  The exact figure has yet to be determined by Ofgem, although it has been speculated that the tariff will be capped rather than the overall bill total.

The cap will also differ by region and tariff type – including whether the consumer is paying for gas or electricity only, or both, as well as the means of paying.  It is reported that a credit card user could end up paying £22 extra per year than through using direct debit or smart meters.  It won’t differ between suppliers, however – ensuring that there is no official difference in maximum rates between companies.  Firms will presumably see this as an opportunity to get ahead of the competition in non-monetary ways, such as improving customer service and response rates.  The Act includes a clause insisting on “the need to maintain incentives for domestic customers to switch to different domestic supply contracts” as a way of encouraging firms to retain discounts for switchers to keep competition healthy and not punish smaller firms.

The price cap won’t affect consumers on prepaid tariffs or those who are protected by other laws, such as vulnerable customers or those on ‘green tariffs’.  Critics of the Domestic Gas and Electricity Bill have voiced concern that, while undoubtedly protecting the poorest customers, the vast majority of ordinary bill-payers will find switching harder and will be forced to pay a standard tariff above the rate they could gain through careful negotiation – a standard variable tariff can often by hundreds of pounds more expensive than the best deals.

A subsidiary part of the Act calls for the 15 largest gas and electricity firms to improve energy efficiency in over one million low income and vulnerable households over the next three years, with the intention of providing cheaper utilities to the least well-off consumers.

Prime Minister Theresa May, announcing the passing of the Act, said: “For far too longer older people, hard-working families and those on low incomes have been subject to rip-off energy tariffs.  Our energy price cap will protect households from unfair price rises in time for this winter when people can feel the pinch more acutely.  We know that the cost of living is still a challenge for some families and today marks an important step in helping people to keep more money in their pockets.”

The charity Citizens Advice supports the Act, arguing that it will help up to 12 million households that have been unable to switch to better tariffs – the Act “will stop firms overcharging customers who don’t or can’t switch supplier.  Loyal customers have paid over the odds for too long.”

Ben Rich
Written by Ben Rich