Theresa May has pledged to set an energy price cap on standard tariffs, in a move designed to cut gas and electricity bills by up to £100/year for those on the worst deals.

Under the plans, to be included in the Conservative party manifesto, regulator Ofgem would be given powers to set maximum prices and be able to review the limit every six months, keeping the cap in line with wholesale energy prices. Last month Ofgem introduced a cap on prices for four million customers who use prepayment meters.

Writing in today's The Sun newspaper, the Prime Minister said: "Like millions of working families, I am fed up with rip-off energy prices... So I am making this promise: if I am re-elected on 8 June, I will take action to end this injustice by introducing a cap on unfair energy price rises.

"It will protect around 17 million families on standard variable tariffs from being exploited with sudden and unjustified increases in bills. The cap will be set by the energy watchdog Ofgem and will help close the gap between standard tariffs and the cheapest deals. I expect it to save families on poor value tariffs as much as £100."

The plans for a standard-tariff price cap follow calls from some MPs for a 'relative' price cap, which would limit the difference in price between a supplier's cheapest tariff and their standard variable rate.

By contrast, the 'absolute' price cap proposed today simply sets an amount above which no supplier can charge. The Conservatives have reportedly opted for this approach over a relative price cap to prevent suppliers simply raising the prices of their cheapest deals.

Use our free Cheap Energy Club to see if you can switch and save £100s on your energy bill now – without waiting for a price cap.

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'Impact on cheap deals less clear-cut'

Responding to today's announcement, MoneySavingExpert.com founder Martin Lewis said: "I'm glad to see the Tories have listened and moved away from a relative energy price cap.

"As I've repeatedly and loudly said – and warned them directly – that risked a disaster for competition. Firms would've been forced to get rid of cheap deals to narrow the differentials and therefore disincentivise people from switching. Instead they're going for an absolute price cap – ie, a limit on the price charged by any firm – set by Ofgem every six months.

"The impact of this on cheap deals is less clear-cut. I'm not 100% persuaded it is the right move, but it's certainly far better – and we have to hope, if they win, that it does the job intended."

How would the energy price cap work?

We still don't have full details of the Conservatives' proposals, but here's what we know so far:

  • There would be an absolute cap on standard tariff prices for those on credit meters.
  • Ofgem would set the level of the cap.
  • The regulator would review it every six months – which means prices could still rise over time.

While May has said she expects some families to save "as much as £100", it's still not clear whether that's off the maximum or average bill faced by those on a standard tariff, and we also don't yet know if MPs will have to pass legislation to bring about the cap. We've asked the Conservative Party these questions and will update this story when we hear back.

Could the cap mean some face bigger bills?

Suppliers and industry bodies have already attacked the planned cap, warning it could lead to higher average prices because firms would set tariffs close to the cap and would be less able to offer cheaper deals to customers who switch.

Lawrence Slade, chief executive of Energy UK, the trade association for the UK energy industry, said: "Today's announcement effectively risks giving up on competition at a time when we need engaged consumers more than ever. Further intervention risks undermining so many of the positive changes we are seeing in the market which are delivering benefits for consumers."

On Monday British Gas owner Centrica said in a trading update: "Centrica does not believe in any form of price regulation. Evidence from other countries would suggest this will lead to reduced competition and choice, and potentially higher average prices."

Labour's Shadow Energy Secretary Rebecca Long-Bailey said the Conservatives had still not provided any proper detail as to how the cap would work.

Meanwhile, Energy Secretary Greg Clark said the price cap plans were "entirely in keeping with the Conservative tradition", and rejected accusations the idea had been stolen from Labour, who in the run-up to the 2015 general election said they would freeze energy bills.

He told Radio 4's Today programme: "Labour's was a very crude policy. It was to freeze prices and actually wholesale prices fell. It was to directly intervene by politicians setting the tariffs.

"What we have responded to is the two-year investigation by the CMA [Competition and Markets Authority] that has established there is £1.5 billion a year on average of overcharging."

Clark also revealed that he had never personally switched energy supplier, saying: "I haven't switched, one of the reasons is... it is quite a hassle to do so. And in my view it shouldn't be necessary to have to switch, to have to go through the fuss, simply to avoid being ripped off."

How energy bill costs are broken down

The table below from Ofgem shows the breakdown of the costs that make up a typical bill from large suppliers.

Domestic bill breakdown
Year Wholesale costs Domestic costs Network costs Green/social costs Other direct costs Operating costs Profit before interest/tax VAT Total bill
2010 £588 £280 n/a n/a n/a £160 £35 £53 £1,116
2011 £537 £287 n/a n/a n/a £152 £30 £50 £1,057
2012 £612 £347 n/a n/a n/a £161 £53 £59 £1,232
2013 £628 n/a £276 £109 £0 £163 £49 £61 £1,286
2014 £532 n/a £278 £100 £5 £166 £51 £57 £1,190
2015 £506 n/a £279 £86 £7 £184 £47 £55 £1,165
Figures based on typical dual-fuel bills for large suppliers
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