Yesterday the Government published long-awaited draft legislation on the energy price cap. We at the Big Deal see this as a hugely welcome step in helping protect consumers from big energy rip-off tactics.  

Brief history of the cap

Theresa May’s government has had a love-hate relationship with the energy price cap to say the very least. The idea first appeared during the election, when she promised a “crackdown on energy rip-offs”.

The government promptly u-turned on that promise – then just to give us some serious whiplash –  u-turned again, reviving the energy price cap proposal last Wednesday.

Now the energy price cap is firmly back on the cards, as the government have published a bill for the cap.

What the cap means for you

An astounding 8 million households have been on the Big Six energy suppliers’ poorest value deal for more than three years. 

If you find yourself on one of these tariffs (which is very likely!) and you’re in England, Wales or Scotland, you’ll be affected by the cap.

How will it work?

The draft bill has to be debated by Parliament and will require Ofgem to introduce the price cap “as soon as is practicable” after the bill is made law.

We’re still waiting to find out whether it’ll be an opt-in or opt-out process, or in other words, whether it’ll be applied automatically to bills.

However, the legislation is not likely to take effect before winter which is disappointing, considering energy usage sky rockets as the cold sets in.

Nonetheless, Ofgem will be bringing in a more limited cap in February to cover people with Warm Home discount –  a cap which is helpfully applied automatically!

Why is a price cap welcome?

It is clear that the energy market is bruised and broken, with far too many people suffering the consequences.

The Big Six energy companies have been overcharging their most loyal customers for years and years. Their standard deal is as much as £225 more expensive than their cheapest.

Supplier SVT Price Cheapest tariff Price Difference
British Gas £1,102 £1,004 (from Sainsbury’s Energy – a white label of BG) £98
E.on £1,123 £898 £225
EDF £1,142 £1,083 £59
Npower £1,166 £1,047 £119
Scottish Power £1,148 £973 £175
SSE £1,109 £1,054 £55

Tariff prices correct as of 11th October 2017. Calculated using Ofgem medium consumption values – 12,000 kWh gas and 3,100 kWh – averaged across all 14 regions.

An energy price cap will be a positive step in stopping rip-off prices being the norm and preventing the exploitation of customer loyalty.

Threat to competition?

Price comparison sites and big energy bosses like EON chief exec Michael Lewis came out against the cap, claiming the market was working well already and that it only dampen competition.

But in fact the evidence shows that competition will not be affected, as switching rates are lower now than when energy price caps were in place around the turn of the century.

Citizens Advice have confirmed this:

“The evidence does not show a clear link between switching rates in the energy market and the savings you can make from switching.” 

There’s also price regulation already implemented in Northern Ireland but there seems to be stopping customers shopping around. Besides, switching rates are the same as in Britain! 

What’s next?

The temporary nature of the cap is fine for now but it’s important that the Government is willing to extend the cap and even make it permanent if the Big Six companies don’t mend their ways.

The challenge now is for suppliers, and switching sites, to find new ways to prevent British consumers from being ripped off.

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