More than 5 million households are to see their energy bills rise by around £57 a year after the regulator announced it was hiking a price cap aimed at protecting vulnerable and pre-payment customers.
Ofgem said it was increasing the level of its safeguard tariff from April 1, meaning the average dual fuel bill will rise from £1,031 to £1,089 a year due to higher gas and electricity costs.
It comes after the energy watchdog extended its safeguard tariff to almost 1 million vulnerable customers on February 2, taking the total number of households protected by the energy tariff to more than 5 million.
Ofgem, which introduced the safeguard tariff in April last year, insisted that households on the tariff would still be better off despite the price rise.
It said their bills – which used to be among the highest in the market – would still be around £35 lower than the current standard variable tariff paid by direct debit customers.
Dermot Nolan, chief executive of Ofgem, said: “Protecting vulnerable customers is a priority for Ofgem.
“That’s why we have extended the prepayment safeguard tariff to almost 1 million vulnerable households, which will help deliver a fairer, smarter and more competitive market for all consumers.
“Even when energy costs rise, people on the worst deals are better off under the safeguard tariff as they can be sure that they are not overpaying for their energy and any rise is justified.”
Ofgem updates the safeguard tariff every six months based on the estimated cost of supplying energy and said the increase follows rises in wholesale gas and electricity costs as well as increased government policy costs.
Stephen Murray, energy expert at MoneySuperMarket, said: “What’s the point of putting a price cap in place for vulnerable customers if you’re going to potentially raise prices twice a year anyway?
“Ofgem saying customers are ‘better off’ will create the increased apathy that the cap is likely to drive, and stop those most in need of saving hundreds of pounds more.
“This really is further evidence, if it was needed, that price caps, whether for vulnerable customers or the 15 million households stuck on expensive standard variable tariffs, just don’t work.”
Lawrence Slade – chief executive of Energy UK, the trade association for the UK energy industry – said: “It is right that there is support for the most vulnerable who may be less able to benefit from what is a highly competitive market, and energy companies are also taking steps to do more to protect their customers in vulnerable circumstances.
“That the cap will rise from April does show how energy costs, which are out of any suppliers’ direct control, are increasing and underlines why it is critical any broader cap must be cost-reflective and protect competition which is delivering benefits for consumers.”
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