Energy price cap could start THIS year as bill launched in Parliament

The Domestic Gas and Electricity (Tariff Cap) Bill, which will require energy regulator Ofgem to cap prices on standard variable and default tariffs until 2020, is set to be introduced to Parliament later today.

The Government says it wants Ofgem to bring in the cap as soon as possible, so that "customers get the protection they need by next winter". It's previously claimed the cap would save customers about £100 a year on average, though we don't yet know what the cap will be set at.

When it comes in, the price cap will set a limit on how much suppliers can charge customers on poor value tariffs. It will help around 11 million households in England, Wales and Scotland which are currently on standard variable tariffs or similar default tariffs, and are not protected by existing price caps.

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Martin: 'A price cap is an indiscriminate solution, which isn't ideal'

Martin Lewis, founder of MoneySavingExpert.com, said: "A price cap is a halfway house. Politicians have to make their minds up. 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. A price cap narrows the differential.

"With a cap in place, some who do switch may end up disincentivised to do so in future, due to a sense that it must mean they're on a decent deal. Yet from April the price cap already in place for vulnerable customers only mandates the reduction of standard tariffs to be £66/year lower for those with typical usage, whereas switching savings can be five times that. Those who don't switch will save some money, but not as much as if they embraced the competitive market or all prices were regulated.

"If we are to stick with competition, what we need to do is decide who is and who isn't an acceptable victim of competition. If I – as someone who is web-savvy, affluent and financially informed – chooses not to switch, that's my problem. If a struggling 90-year-old granny who's not on the web is too scared to switch, it needs fixing. A price cap however is an indiscriminate solution, which isn't ideal.

"For right now though, forget the price cap. Today someone on a big six standard tariff with typical usage pays £1,130/yr on average, while the cheapest tariffs are £810/yr – same gas, same electricity, same safety. Everyone should check if they're on the best deal now. Too many already choose between heating and eating."

How will the new price cap work?

Here's what we now know about the price cap on standard variable tariffs:

• It will be an absolute cap. It will simply set a rate above which no energy supplier can charge (though this is likely to vary by region and your final bill will still be based on how much energy you use). We don't yet know what the cap will be set at, or exactly how it will be calculated – it'll be decided by Ofgem after the bill becomes law.

• It will cover most people on a standard variable tariff. It applies to England, Scotland and Wales – but not those on prepay tariffs (who are already covered by a separate cap), or 'green' tariffs (special tariffs which meet certain environmental standards). If you're on a fix, the price cap won't affect you.

• It will be temporary. The cap will initially last until the end of 2020, after which Ofgem will recommend to Government whether it should be extended on an annual basis up to 2023. Ofgem will also need to review the level that the cap is set at every six months while it is in place.

• The Government will look at 'safeguards' for green tariffs. Under the current plans, green tariffs WON'T be covered by the price cap. However, the Government's said today it will look to add safeguards to ensure green tariffs are only exempt from the cap where Ofgem is satisfied that the tariff supports the production of renewable energy – though it hasn't said how this will work.

• The cap will need to work for consumers AND suppliers. When setting the cap, the Government wants Ofgem to take into account the need to create incentives for suppliers to improve energy efficiency, the need for the cap to be at a level that continues to allow competition, and the need to maintain incentives for consumers to switch. It will also ensure suppliers are able to finance their supply activities.

'Legislation to force energy companies to change their ways'

Prime Minister Theresa May said: "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."