Gas and electricity price cap comes into force

Energy news
Energy news

Theresa May pledged to take further action to prevent consumers being “overcharged” by big business as a price cap on gas and electricity for millions of homeowners came into force.

From Tuesday a limit on how much those on default and standard variable tariffs (SVT) pay comes into effect in a move which regulator Ofgem believes will save households on average around £75 per year.

The £1,137 annual cap will remain in place until 2020 and could be extended to 2023 if the energy market does not become competitive enough, with the Government saying it will cut the amount customers overpay to the “Big Six” suppliers by around £1 billion per year.

Mrs May said: “Our energy price cap will cut bills for millions of families and people across the UK who have been ripped off by energy companies for far too long.

“From Tuesday, money will go straight back into the pockets of loyal consumers, including the elderly and those on lower incomes who feel the pinch more acutely.

“But work to tackle this issue doesn’t stop there. We’re working with regulators and industry to ensure that consumers are not unfairly overcharged in the future – whether on their phone bills or their insurance premiums.”

The cap follows an announcement by the competition watchdog before Christmas that suggested radical reforms to the way the insurance, mortgage, mobile phone and broadband markets operate after finding that loyal customers are being ripped off to the tune of £4 billion.

Following a “super complaint” by Citizens Advice, the Competition and Markets Authority investigated concerns that companies penalise existing customers by charging them higher prices than new customers.

It also found that vulnerable people, including the elderly and those on a low income, may be more at risk of paying the loyalty penalty.

The energy price cap has been set at £1,137 per year for a medium domestic dual-fuel customer paying by direct debit.

It was brought into law in July in the Domestic Gas and Electricity Act.

But the amount people pay will depend on how much they use, with the cap limiting charges per unit of gas and electricity rather than bills.

Ofgem is to review the cap every six months, with the first review in February to come into force in April, with consumer groups already warning it could rise.

Ofgem chief executive Dermot Nolan said the cap would ensure consumers “pay a fair price to heat and light their homes”.

He said: “Consumers can have confidence that any rise in prices in the future will only be down to genuine increases in energy costs rather than supplier profiteering, while falls in energy costs will always be passed on to them.

“Households who are protected by the cap will be able to save even more money by shopping around for a better deal.

“In the meantime, Ofgem will continue with reforms which aim to deliver a smarter, more competitive energy market which, combined with protection for those who need it, works for all consumers.”

However, consumer group Which? warned before Christmas that cheaper energy deals were vanishing from the market ahead of the cap.

Its analysis from December found just eight tariffs costing less than £1,000 a year – compared with 77 dual-fuel tariffs to choose from across Britain in January.

Gillian Guy, chief executive of Citizens Advice, said: “The introduction of this cap will put an end to suppliers exploiting loyal customers.

“However, while people on default tariffs should now be paying a fairer price for their energy, they will still be better off if they shop around.

“People can also make longer-term savings by improving the energy efficiency of their homes.

“Simple steps, such as better insulation or heating controls, are a good place to start.”

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