The government will extend the energy price cap beyond its current end date of 2023 and trial a scheme that automatically moves households to cheaper tariffs, part of a plan to tackle the "loyalty penalty" in the energy market.
The plans are outlined in the government’s Energy Retail Strategy, released Friday. Business and energy secretary Kwasi Kwarteng said the measures will “unleash a wave of competition within the energy market and keep energy bills low.”
The energy price cap limits the bills of the 11 million households on poor-value standard variable tariffs, including those who have been rolled over onto these default tariffs after their fixed tariff lapsed. It came into effect in January 2019 and is adjusted twice a year, in April and October, to account for fluctuating wholesale energy prices and other supplier costs.
Under the terms of the original legislation, the price cap can be renewed annually by regulator Ofgem until 2023. The government will now consult on extending the cap beyond this date.
Although the cap has been increased recently—by £97 in April, with a hike of around £100 expected in October—the government says it still saves households on the most expensive tariffs between £75 and £100 each year.
“New price cap legislation will enable continued protection until we’re confident the market is sufficiently competitive,” Kwarteng said.
Citizens Advice welcomed the extension of the price cap, which chief executive Clare Moriarty said is “especially important at a time when many households face significant financial challenges resulting from the pandemic.”
Additionally, the government plans to extend the Warm Home Discount, which gives pensioners and low-income households an annual rebate on their winter energy bills. Under the announced plans, the annual rebate would be increased to £150 and run until the winter of 2025-26.
The scheme will also be extended to cover an additional 750,000 consumers each year, bringing to total helped to three million.
The government will also take steps to encourage households to move from expensive tariffs to cheaper ones. While 5.8 million households moved to a new energy supplier last year, saving an average of £290 per year, research from Ofgem suggests that less than half of households regularly shop around for a new energy tariff. There are more than 50 energy suppliers on the market but the “existence of better deals on the market is not sufficient in itself to drive consumer behaviour,” Kwarteng said.
From 2024, a large-scale trial will give some households on poor-value tariffs personalised switching advice and even automatically move them to a new tariff unless they opt out. Minister hope that the trial will not only save customers money but also move them to tariffs backed by renewable electricity.
Minister of State for Energy Anne Marie Trevelyan said: “Automatic switching trials, with the option to opt-out if people prefer, will reduce energy bills for thousands of households. But it could also lead to greater take-up of greener tariffs, making the most of the great strides we have made in renewable energy to put more pounds in people’s pockets.”
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