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Update: will the proposed energy price cap be enough?

Energy prices

Prime Minister Theresa May has announced plans to tackle rip-off energy bills with an energy price cap. But will such a cap be enough to help you?

Update: 6 September 2018

Households on the most expensive energy tariffs could save around £120 per year when a new price cap comes into force this winter. But the cap doesn’t mean you’re protected from overpaying on gas and electricity – switching supplier will save you more.

Alex Neill, Which? managing director of home products and services, said:

“While this cap may bring a price cut for some, people shouldn’t think it will mean they’re automatically getting the cheapest deal on the market. There are still better deals on the market and energy companies must not use the cap as an excuse to delay helping the millions of customers stuck on rip-off standard variable tariffs to move. The price cap can only be a temporary fix and the Government, regulators and the big providers should now press ahead with reforms to create real competition, promote innovation and improve customer service”

Energy price cap

During her speech to Conservative Party Conference, Theresa May announced plans for an energy price cap. The Prime Minister said:

‘The energy market punishes loyalty with higher prices, and the most loyal customers are often those with lower incomes, the elderly, people with lower qualifications and people who rent their homes’

And announced that a draft Bill will be published next week that would give Ofgem powers to impose a cap on all standard variable tariffs.

The move puts an end to months of buck-passing between the government and Ofgem about how to tackle soaring household energy bills. And it looks like it could finally deliver on the government’s pledges made during the General Election.

There are millions of hard-pressed energy customers still suffering due to a lack of competition in the energy market. So any intervention that brings down energy bills will be welcome.

That said, in bringing forward this legislation, the government must ensure that any cap doesn’t result in higher bills overall, undermine improvements in service or bring much-needed innovation to a halt.

To ensure that any intervention that’s made by the government is actually a good outcome for bill payers, we believe that it should pass five key tests.

1. It must not cause longer-term price increases
If bill payers see price reductions overnight, but energy providers offset initial reductions with price increases over the long-term, the cap won’t have worked.

2. It must not remove incentives for providers to improve their service
Consumers have routinely suffered from poor customer service from many suppliers and have faced particular issues with inaccurate bills and poor complaint handling.

3. It must not stifle innovation
The government and the regulator must ensure that the cap does not stop consumer-friendly innovation in the energy market. They must ensure that the smart meter roll-out continues to be advanced in the most cost-effective way possible.

4. It must lead to a truly competitive energy market
Consumers have suffered as a result of a lack of competition in the energy market with the competition authorities estimating that people are collectively overpaying by £1.2bn as a result.

5. It must have clear criteria for bringing any cap to an end
The long-term objective must be for a competitive energy market that delivers for consumers. This means that any price cap should be time-limited. The government and the regulator must set out proposals for the length of the cap, how they will monitor its success, and the criteria by which it will be removed.

Fairer energy

Of course, the cap will not take effect this winter, which may be a disappointment to those who are already concerned about energy costs as we descend into the colder, darker months.

With a number of price hikes by a number of larger and smaller energy suppliers in recent months, energy prices are returning as a top financial concern for many. So the draft Bill must make the most of the opportunity to fix this broken market and deliver a fairer deal.

Now we await the publication of the draft Bill and the full details of the Prime Minister’s proposal.

Update: 11 October 2017

The energy regulator, Ofgem, will extend its current price cap for prepayment gas and electricity meter customers to cover an additional one million households this winter.

The plan will see energy bills cut by an average of £120 over the year for some of the UK’s most vulnerable households, according to the regulator.

The regulator has also said that it will begin consulting on extending the price cap for a further two million households for next winter, once the government’s price cap plans are confirmed. The Prime Minister announced last week that the government will prepare a draft bill to propose an energy price cap, this draft bill is expected tomorrow.

Our managing director of home and legal services, Alex Neill, said:

‘As temperatures dip, today’s announcement will be welcome news to some of the UK’s most vulnerable households. The implementation of a market-wide price cap is clearly going to take some time, so it’s right that the regulator is looking to more quickly protect the most vulnerable.

‘Energy companies must also do much more to engage their customers, helping them to switch to a better deal now. Only time will tell whether all of these interventions will really deliver better outcomes for consumers.’

We want to see a fairer energy market for all households. Every household, even those affected by the energy price cap, could get a better deal by switching. Our free Which? Switch service can help you compare gas and electricity prices and help you find the best deal for you.

Do you think a price cap will be the solution we need to fix the energy market? What else would you like the government to do?

Update: 12 October 2017

We’ve been campaigning for many years to highlight the broken energy market. Over 500,000 supporters supported our Fair Energy Prices campaign, urging energy companies and the regulator to do more to get customers off rip-off standard variable tariffs (SVTs).

So the news that the government has published a draft bill to introduce a price cap should be welcome. But it isn’t quite so straightforward.

Two-thirds of households in England, Scotland and Wales will become much better off overnight when the cap is introduced, giving relief to hard-pressed consumers. 14 million people on SVTs will save themselves hundreds of pounds a year.

But although the Draft Bill requires Ofgem, the energy regulator, to put the cap in place as soon as possible, consumers shouldn’t expect to benefit soon. The Draft Bill will have to go through pre-legislative scrutiny first before a bill goes through the normal legislative process and Ofgem consults on the measure. Then there will be another step of statutory consultation to change energy suppliers’ licensing conditions. It’s unlikely the cap will come into force until winter 2018/19, to remain in place until at least 2020.

Whilst a cap may sound like a positive move, we want the government to safeguard against any unintended consequences like higher prices, reduced competition in the market and poorer customer service. So it is promising that the Draft Bill outlines a temporary cap, and Ofgem will be tasked with making sure competition and consumer incentives to switch are preserved. But there is a long road to travel down before we know what the actual cap will look like.

Update: 13 February 2018

A report published by the Business, Energy and Industrial Strategy (BEIS) Committee has concluded that the government’s proposed energy price cap is necessary to address the UK’s broken energy market.

According to the Committee, the energy market has been dysfunctional for years. It highlighted that the regulator has failed to protect energy customers.

The report found that many energy suppliers are making substantial profits out of around 12 million ‘sticky’ customers who are on poor-value tariffs. The committee believes that an absolute price cap is the best way to tackle this overcharging for energy.

The introduction of a price cap should be a helping hand for millions who are paying over the odds for their energy. However, we’ve stressed that this price cap should not lead to any unintended consequences for consumers, such as poor customer service or higher prices overall.

While the Committee has called for the cap to be urgently introduced, it’s not expected to come into effect until next winter at the earliest. Our research found that you could save up to £305 per year by switching*, so if you think you could be overpaying for your energy then try Which? Switch to compare prices and see if you could get a better energy deal. Even once the price cap is in force, you will have to switch to get the best deals on the market

*A saving of £305 per year is possible by switching from the priciest Big Six standard tariff to the cheapest deal on the market. The figure is correct as of the 1 February 2018.

Comments
Brian says:
4 October 2017

Stop the over charging on pre- pay meters, people should just pay for what they use.

It is worse than that, pre-pay meters are forced onto the most vulnerable people in society, they are forced to pay inn advance at a rate for higher than someone on a normal pay after the bill arrives. The courts should not give utilities suppliers permission to force their way into vulnerable people homes to install rip off pre-pay meters.

ALL privatisation was and is illegal. If someone broke into your home and started selling all your furniture in a garage sale outside you’d be livid, so why did all of us not kick up a fuss before. They told us they were going to sell it off, we didn’t have a referendum on that. So therefore everything that was privatised was done illegally. It is ours, not theirs to sell. They also told us that it would be better for all when it was sold off. Another lie, we have all been sold as slaves too but you still haven’t found out about that bit as yet. Research your STRAWMAN account.

My opinion ONLY here
Of a better future for us all plus a better way of running,
The problem of policing any power company selling to us public.

Well good news the CAP on our energy bills
But! Point here to ponder on us Customer,
In addition, big six power companies and the rest of them.

POINTs! Below
“I believe would help in policing this problem of pricing when new
Law are “put in place by Govt.
Points
1**Govt need to police it right to make sure the power firms
Are applying the cut to our bills (by way of saving us all cash ONLY)
2**Not by way of perks offered to customers but bill stay the same price
If you sign up to receive the “perks that is. (On offer by power firms)
3**This a loop hole (perks offered) they use now all power company.
However, you bill still stay high. (Needs addressing now Govt)
4**to keep power company in line Govt?

Why not fine the shareholder and well-paid” board member only?
Hold them fully responsible for their Mangers down the line not,
Doing their job right and not keeping the tariffs down,
In addition, enforcing the laws put in place by any Govt
.
5**Govt could also put a stop to any power company for breaking,
The rules of pricing and not passing the benefits on to usurers,
By once they have “been found out not to be doing what Govt says
In law, they could have their trading licenses removed by Govt.
If the latter in this comment is on the books of what could happen,
To any power company.
They will think about doing what right not rip us off when the,
Big boss are “being held fully responsibility in the first place.
Finally!
Could reply to this comment be intelligent once please only?
On the content of “my response to this article thank you.

steve dodd says:
4 October 2017

there just needs to be ONE basic tariff so everyone pays the same

I agree should be no variance in charge

David says:
4 October 2017

The tariffs should be simplified. The low short-term offers are only there to attract customers from other companies and to be honest, I have better things to do with my time than search the internet for offers and change my supplier every year or so no matter how easy it is.
The government should set the single tariff nationally, and the companies should make their profit out of being more efficient not by manipulating prices.

I know little about this industry, but from the little I do know, the renewable green power companies are the cheapest companies i’ve found and I’ve read that the big 6 et al, see them as way too much competition as a result because renewables are so cheap and will get cheaper, the big 6 et al are trying to run them out of town. Ergo it seems to me that the biggest unrenewable companies are going to have to go under and renewables are the way forward for us all, for prices and even more importantly for humanity, for the planet & those we share it with.

richard says:
4 October 2017

agree – sensible and affordable and perhaps equitable…so doomed if dubious practice isn’t eradicated

Primila Lewis says:
4 October 2017

I agree with FC that we need more and more renewables to provide cheaper and sustainable electricity for all. Meanwhile the BIG Six must be regulated strictly and
transparently to ensure they do not have wriggle room to cheat hapless customers of a fair deal.

Garry Hunt says:
4 October 2017

My fixed rate has just ended, I was paying £27.00 pm. Now they. Have put it up to £46.00 pm with doubling the standard charge from £20.00 to £42.00 pm.

Please do not get carried away, this was Tory Party public relations exercise.

By their deeds you shall know them.
When ever did the Tories act in the interest of working people? Never.

Lisa says:
4 October 2017

Pre-payment customers need to stop being charged more. Low income families should be included in winter fuel assistance. In this day and age no one should go cold!

All businesses abuse customer loyalty; insurance and TV services are other good examples of this. There is a remedy, but if consumers will not help themselves I am not sure it is a government role to do it for them.

Regarding helping the most vulnerable in society with energy/heating poverty I believe that everyone who receives income support ie the poorest, should be entitled to a winter fuel allowance paid for by savings made by introducing means testing for OAP’s using the same criteria that is used for assessment for entitlement for income support ie savings and income levels.

My flat is all electric – I have no option but to pay the bills – £95 per month at the moment without any heating. Yes it needs to be looked at.

Lets make a start by telling her to get a same price cost which ever company delivers your gas !Its all the same gas ,why is the price so different ?And don’t say it’s a competitive market ,because it isn’t .And lets end this tariffs for changing your supplier ,this stops many people changing at present if it costs them £30 a fuel to change .On duel fuel that is £60 before you start to save on a cheaper tariffs !

The governments stupidity in rolling out smart meters should be scrapped. They do not save energy and are a waste of resources. Capping prices should be instant. Solar panels should be mandatory. All customers should be forced to switch energy suppliers every year.

Now that makes a lot of sense. I agree totally.

Some of us live in areas where there is no gas because British Gas will not run the pipes. We get penalised because we only have electricity (and oil) which is unfair. It is not our fault we do not have dual fuel.

Brian Kelly says:
4 October 2017

Only Nationalisation of all the Energy Companies, is the only long term sustainable answer.

There are obviously problems where people are forced to use pre-payment meter: that part of the markets needs further investigation. But everyone else has the same opportunity to find the best deal: most of the remaining just can’t be bothered. This isn’t a nanny state.

Being disabled and living alone I benefit from the warm home discount. this is very helpful, however it would be much more helpful if I received it in say November as opposed to May when its of no genuine value to me. Just a thought…

Bryan says:
4 October 2017

Private energy companies will always seek to charge as much as they can possibly get away with, so ultimately the answer can only be nationalisation.

John Salmon says:
4 October 2017

Stop the confusion with the thousands of various tariffs. It’s virtually impossible to work out who is offering the best deal. It’s the “Confusion Marketing” that these companies rely on. Also, standing charges, what is that all about? Something needs to be done.

Bryan says:
4 October 2017

Automatic inclusion on cheapest tariff unless customer specifically opts out of this option.

Loyalty should be rewarded. Short term discounts offered to new customers should be made illegal.

Paul Mathias says:
4 October 2017

This issue needs widening beyond the very short term.
1 More local energy companies;
2 run as cooperatives;
3 stop hidden subsidy of the black energy sector and give a level playing field to renewables, expanding on-shore wind, the cheapest of all the renewables;
4 Invest in residential battery roll-out so that we can save our home produced, cheap energy;
5 Perhaps most important of all properly insulated buildings: we pay for the units which leak out of poorly-insulated ones, adding to both our bills and to the profits of the big 6.