The Prime Minister Theresa May has promised to publish a new draft bill setting out plans for an energy price cap which applies to standard variable tariffs.
In her keynote address to the Conservative party conference in Manchester, the Prime Minister said the bill would be published next week. She did not give any further details, but it's since been announced that:
- The bill will give the regulator Ofgem the power to impose a cap on standard variable tariffs across the whole market
- It will be up to Ofgem to set the level of the cap
- This measure is intended to be temporary, until "innovations such as smart meters arrive and enable the market to work properly for everyone"
The announcement follows various promises of a cap on energy prices since before the general election. In June the Queen's Speech included mention of a price cap but this turned out to be only for vulnerable customers, rather than all those on standard tariffs as originally thought.
Ofgem is already looking at introducing a 'safeguard tariff' to ensure vulnerable customers don't overpay on their energy by setting a cap on the maximum per-unit amount they can pay.
We've yet to see the full details of the safeguard tariff, though one of the options under consideration is to extend the existing cap on prepaid energy prices to those who receive the Warm Home Discount, protecting about 2.5 million people.
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Martin: 'A price cap done wrong can do more harm than good'
MoneySavingExpert founder Martin Lewis said: "It’s a national disgrace that a struggling 90 year-old granny pays substantially more to boil a kettle than an affluent web-savvy man like me.
"However a price cap done wrong can do more harm than good. Some in the Tories have called for a ‘relative’ price cap – which means a firm's most expensive price can only be a set percentage more than the cheapest. That’s self-defeating – it means they’ll just withdraw cheap deals.
"Politicians have to decide - do they see competition and switching as the solution, or do they want to regulate prices? For switching to work, you need big price differentials – so some will have to pay more than others.
"As the Tories want switching, what they need to do is decide who should be in a competitive market and who not, and protect those who can't rather than won't engage. As that's difficult, any cap should simply be a set ceiling on rates, much like has been implemented in the prepayment market.
"Yet imposing a cap will take at least a year to come in, and to channel Game of Thrones, winter is coming. Right now someone on a big 6 standard tariff with typical usage pays £1,130/yr on average. The cheapest tariffs are £820/yr – same gas, same electricity, same safety.
"So no one should wait for the cap. Everyone should check if they're on the best deal now - including our current Secretary of State for Energy, who ludicrously last year said he hadn’t switched as it was ‘too complicated’. If he still hasn’t worked out how it’s done, perhaps he shouldn't be in charge of encouraging the rest of the nation to do it. Too many already choose between heating and eating.”
PM: 'The energy market punishes loyalty'
During her speech, May said: "The energy market punishes loyalty with higher prices. The most loyal customers are often those on low incomes, the elderly, people with lower qualifications and people who rent homes.
"Next week there will be a draft bill to put a price cap on energy bills, meeting the manifesto promise to bring to an end rip-off energy pricing once and for all."