Energy price cap plans to limit ‘rip-off’ bills reach Parliament




Plans for price caps on controversial default energy tariffs are reaching Parliament for the first time, amid deep divisions on the wisdom of the intervention.

The Government’s Domestic Gas and Electricity (Tariff Cap) Bill would allow the regulator, Ofgem, to limit standard variable tariffs (SVTs) until 2020, with the option to extend the cap annually until 2023.

SVTs – often the most expensive type of default charge – are paid by 11 million UK households, largely because they have failed to switch tariff or supplier.

A report by a regulator in 2016 found SVTs contributed £1.4bn in excess profits to energy companies.

There has already been support for five million properties perceived as vulnerable through pre-payment meter caps and other discounts.



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Why not just ban default tariffs?

But Prime Minister Theresa May signalled that her patience on default charges had run out after efforts to force the issue through the regulatory system failed.

She said on Monday: “It’s often older people or those on low incomes who are stuck on rip-off energy tariffs, so today we are introducing legislation to force energy companies to change their ways.

“Our energy price cap will cut bills for millions of families. This is another step we are taking to help people make ends meet as we build a country that works for everyone.”

Members of the the so-called “big six” energy firms have hit out at the proposed caps – insisting they are anti-competitive.

Centrica, the owner of the country’s largest supplier British Gas, told Sky News last week the measure was one reason why it had taken the decision to shed 4,000 jobs by 2020.


Centrica Chief Executive Iain Conn at the annual conference of the CBI (Confederation of British Industry) at the Grosvenor House Hotel in London. PRESS ASSOCIATION Photo. Picture date: Monday November 9, 2015. Photo credit should read: Dominic Lipinski/PA Wire

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It had already pledged to scrap SVTs in favour of customers who fail to switch on to new fixed rate tariffs and argued that caps risked reducing competition among the UK’s supply base – currently running at more than 60 firms.

Lawrence Slade, chief executive of industry lobby group Energy UK, said: “It’s vital the cap doesn’t halt the growth of competition which is helping customers to find a better deal and save on their energy bills.

“It’s also important that the cap accurately reflects suppliers’ costs, most of which are out of their direct control.”

Rebecca Long Bailey, the shadow business secretary, said: “Today’s action, whilst welcome, will do little to comfort customers facing price hikes now after the Government delayed this bill by over a year.

“The Government promised action on energy bills a year ago yet energy costs are still spiralling and four million households live in fuel poverty.

“A price cap is simply a temporary sticking plaster and the Government must realise that they need to do much more to fix our broken energy market.”

Richard Neudegg, head of regulation at the price comparison site uSwitch said: “The Government’s introduction of this price cap might be well meaning but is fraught with potential unintended consequences that will need to be carefully managed.

“A price cap is not a magic bullet – the biggest danger is that it risks giving consumers a false sense of security that their bills will be lowered.”




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