New energy price cap considered

Electricity pylon Image copyright PA

A price cap on energy bills could be extended to many more households on low incomes, under plans being considered by regulator Ofgem.

A limit on the cost of gas and electricity for those on pre-payment meters already saves about four million people £80 a year.

This could be extended to about two million others on certain benefits.

The proposals come after a much wider cap in the Conservative manifesto was absent from the Queen's Speech.

The manifesto had suggested the energy market was not working for consumers and, in a widely-debated move, suggested a tariff cap to protect 17 million people paying standard rates. This would have saved them up to £100 a year.

However, after the election, new legislation required for the cap was missing from the government's plans for the next two years.

Instead, the government said ministers were "considering the best way" to protect those on the poorest-value tariffs.


Business Secretary Greg Clark wrote to Ofgem to challenge the regulator to use its existing powers to reduce bills.

The response from Ofgem lists a range of proposals covering billing and switching.

Dermot Nolan, chief executive of Ofgem, told the BBC: "We're focusing on plans that we will take forward with some urgency to offer extra protection for some customers."

That includes "a strong possibility that we'll extend the price cap currently in place for pre-payment meters to vulnerable customers as well".

Last year, a landmark investigation by the Competition and Markets Authority concluded that many households on standard variable tariffs were paying too much for their energy.

It calculated consumers were overpaying by up to £1.2bn a year.

This led to a cap - set regionally - on the cost of energy for those on pre-payments meters.

Five of the "big six" energy suppliers raised prices for other customers earlier this year, despite pressure not to do so. Ofgem said such rises were not justified.

Now the regulator has said it will hold a summit in July with consumer groups on how it could extend the pre-payment meter cap to other households.

Citizens Advice has already suggested that two million extra households which receive the Warm Homes Discount should get the same protection, including some pensioners and families with young children.

The charity has assisted householders such as Shabnam Ali, who is set to save hundreds of pounds a year after she was helped to switch from her standard variable tariff.

She said that she was left in a panic and unwell for two or three weeks after she received a bill showing that her energy costs had risen sharply.

"For two or three months the bill was OK, but suddenly it went higher," she said.

Millions 'suffering'

Other proposals outlined by Ofgem include:

  • A trial that would allow households to enter only their postcode and current supplier into a "digital deal checker" to view the cheapest tariff
  • Requiring suppliers to inform customers of cheaper deals with rival companies, under a trial scheme
  • A clickable option on all price comparison websites to ensure customers see prices in the whole of the market, not just preferred suppliers
  • A cap on the charges levied when a pre-payment meter is installed under warrant

Mr Clark, whose Business Secretary role also covers energy, said: "The government has made clear its commitment to extending price protection to more energy customers on poor value tariffs.

"I now want to see this [Ofgem response] translated into action with suppliers playing their part in supporting Ofgem to deliver a fairer deal to customers on poor value tariffs. I look forward to seeing rapid progress and will consider next steps when I have received Ofgem's proposed actions."

Lawrence Slade, chief executive of Energy UK, which represents the major suppliers, said: "Energy companies are committed to engaging with their customers to help them get the best deals, and switching levels continue to rise with over two million consumers having already switched this year.

"We are committed to working with the government and the regulator to deliver an energy market where competition continues to flourish and which produces fair outcomes for all consumers, including better targeted support for the most vulnerable."

Yet consumer group Which? questioned whether the Ofgem proposals went far enough to ensure the energy market worked well for all consumers.

"Millions of hard-pressed customers are overpaying for their energy and suffering due to a lack of competition in the energy market," said Alex Neill, from Which?.

Rebecca Long-Bailey, Labour's shadow business secretary, said: "Ofgem's watered down proposals go nowhere near the promise made by the prime minister to adopt Labour's principle of a price cap."

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