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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

To my mind capping will ensure that all companies work to this and so prices will be inflated anyway?

Stop Energy Companies from chargeing standing charge 4 times a year especially when you’re meter is only read every 6 months and the other 2 readings are estimated

The standing charge covers more than meter readings. They vary considerably from tariff to tariff. Maybe standing charges should cover the fixed costs that apply to all consumers, irrespective of their energy usage, and follow rules laid down by Ofgem. If standing charges are reduced, unit prices will increase; they are inextricably interlinked. I suspect energy companies use higher standing charges (and lower unit charges) to guarantee them an income, as energy usage will vary depending upon the weather. However, in the context of your annual spend, it is perhaps irrelevant; it is the total amount you are charged that matters, a combination of energy usage and daily charge.

“Tracker tariffs” seem to be another way to link energy prices to an agreed independent index. Ofgem discuss them here: https://www.ofgem.gov.uk/system/files/docs/2017/10/guidance_on_tracker_tariffs.pdf

Energy companies’ ethos needs to be challenged. They take a free resource, sell it back to us, make us need it, and make us suffer if we can’t pay. As well as debt bullying – often over their shortcomings, not ours – security deposits are being required ironically from those who have trouble paying. But we can’t avoid needing or paying for energy, and so it’s attacking the poor and ad hoc earners. Companies don’t like being questioned about billing or their terms. Yes, including the indie green ones. This onesidedness needs addressing urgently, as does the useless ombudsman who colludes with the company, not helps the customer.

V, I don’t understand your comment “they take a free resource, sell it back to us,“. If you mean energy, it is not a “free resource”.

Earlier in this Conversation I queried the logic behind the claimed £1.2 billion saving if we all moved to the cheapest tariff. What I was asking Which? was to look at this figure. Would that still yield an acceptable profit margin? Because I saw no way that it could. We should be careful about promoting this sort of information without giving it proper scrutiny.

Which? today say: “If you’re on a standard tariff, a quarter (26%) of what you pay covers your energy firm’s operating cost and profit. If you have a fixed tariff, just 14% of your bill goes towards operating cost and profit. Ofgem estimates that if variable tariffs were reduced to a similar level as fixed tariffs, suppliers would make a loss unless they could cut their costs.

Read more: https://www.which.co.uk/news/2017/11/top-five-cheapest-energy-deals-for-november-2017/ – Which?

So it was (is) a totally misleading figure. It demonstrates that fixed price tariffs are being subsidised by SVTS – something I believe should stop, by making them both contribute equally to their respective operating costs and profit. Then those who cannot switch will not be subsidising those who can.

I’m with OVO and I will stay with them no matter what may does. I was with British Gas and felt I was being ripped off. I was! My PAYG OVO top ups are 50% less now. I’m very happy thanks to Which!!

Hi Karen, that’s great to hear you’re loving OVO

The usual result of enforcing price caps, is that all providers simply charge just below the cap. This achieves absolutely nothing.

Any artificial device to interfere with a competitive market for political reasons will lead to a distortion. There are around 40 suppliers available to consumers with a huge ( relatively speaking) range of prices. This is about people who cannot be bothered to change tariffs or suppliers, or who are not equipped to. The former make a choice; the latter need help to switch. We should do this properly and not play around with inept “solutions”.

We are with Economy Energy and it’s time to switch tariff. The Which? energy supplier service confirmed that Economy Energy Online Saver tariff is the most competitive for our needs. However, when trying to switch we were told that the Online Saver deal involves a double payment in month 1 because “Economy Energy had pre-bought the gas”. I didn’t spot that in the advertised tariff and have decided to switch to another supplier on principal, even if their annual charge will be slightly higher.

So British Gas are to scrap Standard Tariff. I’m sure this will make a lot of difference. They, like the rest will just find another way to rip us off. Its all smoke and morrow’s.

Tim M says:
21 November 2017

As of course Which? is aware, speeches made at party conferences don’t necessarily translate into sincere action/ behaviour by suppliers (or indeed Ofgem which is supposed to protect us) that actually improves anything for those said to be the main losers. So I agree that the five tests as set out by Which? need to be met.

Energy suppliers aren’t fools. As in all big business, they can afford lots of in-house or out-sourced ‘advisers’ to keep them one step ahead of the regulator and to think up cunning plans to mitigate anything they see as a threat to their livelihood. Many suppliers are part of larger groups which have lots of distant grey suits in boardrooms across the world to keep happy and who get easily twitchy when balance sheets start looking a bit wobbly.

I am sure I’m not alone in believing that the charging/ tariff structure is kept deliberately opaque to:
a) give customers the illusion of ‘choice’
b) make it as difficult as possible for users to determine if they are being ‘ripped off’.

Therefore the whole structure must be drastically simplified alongside any price cap imposition.

I agree. As so often happens with regulators, Ofgem is playing catch-up.

rebecca says:
10 December 2017

[Sorry, your comment has been removed to align with our community guidelines https://conversation.which.co.uk/commenting-guidelines/. Thanks, mods.]

I have just looked at BG’s projections for energy costs in 2017. I am still on the standard tariff and the two alternatives they offer me amount to the same cost as the standard tariff projections. So no savings on the available alternatives + exit fees if I move.

Cate – How much are the exit fees on your standard tariff?

I switched to Economy Energy in November 2017 and gave a meter read at the time. Yesterday they wrote to me increasing my D/D by 10% “because they have been monitoring my usage”. Yet I haven’t yet given them a meter reading by which they could monitor my usage.
I’ve complained, and told them unless they remove the 10% increase, I will chose another supplier (despite the £25 penalty)
I left my previous supplier because they repeatedly attempted to increase my D/D despite the fact that my account was in credit the whole time I was with them. I got fed up with long waits on the phone to complain, and now my new supplier is doing the same.

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I am currently with Iresa. I am very dissatisfied with their service and attitude to customers. Judging by the number of appalling reviews and comments they are amassing on Google it would be great if Which could intervene on customers behalf as Ofgem don’t appear to have enough muscle. I truly believe that Which stands up for the consumer. Keep up the good work i’m glad your there for us.

I’m not sure that you can do much other than switch to another supplier if the company’s service is not very good but if you have a specific complaint you could take it to the Energy Ombudsman: https://www.ombudsman-services.org/sectors/energy/complaints-we-deal-with

This comment was removed at the request of the user

This comment was removed at the request of the user

Iresa does not to badly in the Which? ratings but there is no details about the company. I wish Which? would date all articles.

Which? have done another update on price caps, which is added to the introduction to this page.

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I seem to remember a recent warning abot Iresa’s customer service, and this is borne out by online reviews. They were told to stop taking new customers early last year until they improved customer service.

Ofgem opens investigation into Iresa’s customer service
Publication date 16th February 2018
Information types Press releases
Policy areas Domestic consumers Electricity – retail markets Gas – retail market
Ofgem has launched an investigation into Iresa’s customer service processes.
The investigation will examine whether Iresa broke rules relating to customer information and customer contact. This includes examining whether they treated customers fairly in their call handling and complaints processes, gave indebted customers sufficient notice that they were taking a debt repayment out of their account, or established with these customers their ability to pay the debt. This also includes examining whether they enabled customers to switch suppliers on request, in line with our rules, or refunded customers’ money in a prompt and timely way.
The opening of this investigation does not imply that we have made any findings about non-compliance by Iresa.

From the Which? website:
“February: Energy regulator Ofgem begun investigating Iresa’s customer service. It opened the probe shortly after Which? reported that Iresa customers faced big unexpected payments. Ofgem will look into whether Iresa broke rules including about treating customers fairly on the phone and when handling complaints, giving customers in debt enough notice that a repayment was being taken, establishing that customers in debt were able to pay, letting customers switch supplier, and rules around refunding customers promptly.

Read more: https://www.which.co.uk/reviews/energy-companies/article/other-energy-companies-reviews/iresa – Which?”

I found this by searching the Which? site for Iresa but the review of Iresa is no longer linked to the page about the best and worst energy companies: https://www.which.co.uk/reviews/energy-companies/article/best-and-worst-energy-companies/which-energy-survey-results Please could Which? fix this link?

I omitted the link to Ofgem’s statement that I posted above wavechange’s.
https://www.ofgem.gov.uk/publications-and-updates/ofgem-opens-investigation-iresa-s-customer-service
It includes “Concerns were raised with Ofgem relating to a high level of complaints against Iresa, including through Citizens Advice and Ofgem’s consumer affairs teams.
I hope Which? were among those raising concerns.

I just had an email from a big six energy company telling a blatant lie; that by switching to a different tariff of theirs I’d save money. Always ask for the p/day and p/kWh charges and get out a calculator rather than trust these spivs with theirs. Their email estimated a £ per year saving which was not based on what I really use.

Had I taken their offer of a switch, which they wrote would save me money, I would not be getting as low a bill as I presently get with all of the savings resulting from my improved insulation, energy efficient lights, and other bill reduction measures. Their annual bill after their proposed tariff switch would have cost me about £255 per year for electricity by comparison to £235 per year on the present tariff.

If a big six energy company writes offering what looks like a 10% bill saving by switching tariff, they might really mean a 10% bill increase like mine, and they are not breaking the law if nobody has worked out the proper estimate yet.

Would love to sign your current energy campaign but your page ask for my current supplier – which is Pure Planet – who you dont list and there’s no option to choose “Other”, so I can’t sign…

I notice that Calor Gas the LPG suppliers don’t appear on your list, the government talks about capping the price of power but completely ignores LPG suppliers who can charge any price they choose, There are thousands of people, mainly pensioners, who are using LPG but are at the mercy of LPG suppliers, as they are unable to change to a different company because of the big variation in cost,why has the government ignored this situation for so long.

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foxcliffe says:
27 February 2018

Great news yesterday wasn’t it ‘Energy price cap could save us all £1.4bn a year’.

Today I get an email from my energy supplier telling me my electricity prices are going up in 60 days time Absolutely Marvellous!! Keep up the great work.

As I see it, this “£1.4 bn saving” is nonsense (someone please correct me). It seems to be based on the premise that all those on expensive SVTs would move to the cheapest (fixed price fixed term) tariffs. However, as the SVTs generate the main profits, energy companies would not want to lose out. So they would increase the price of the “cheap” tariffs to restore the “lost” profits.

According to Ofgem, the “big 6” energy company profits in 2016 were £1032 million. How, therefore, can they be overcharging is by £1.4 billion?

Also, for those of us who regularly switch, and have recently done so, it won’t save us any money at all.

But hey, why let facts get in the way of a good headline? 🙂

My point exactly. This need to sensationalise everything to draw in readers is what so annoys me about the media. All they are doing is instigating discontent amongst the masses through lies and false rumour. I would have hoped for better from Which?.

Those energy customers currently on high cost tariffs are undoubtedly going to save money but the energy companies supplying them have to remain viable. To do that they have to turn a profit so that they can continue to supply energy and improve their services. Thus it stands to reason that £1.4bn the happy few have just saved has to be redistributed amongst the more savvy, but now less smug, multitude. Standard charges may well drop but all other options are bound to rise.

However, hopefully, this may prove the catalyst that brings about the demise of the overwhelming confusion of competing tariffs. One lives in hope.

It is not only going to not save us any money, it is going to result in higher costs across the board (apart from those standard tariffs to be cut). Oh happy days 🙂

You might appreciate it when you are old and too busy struggling to cope with daily life to worry about switching energy supplier.

I don’t appreciate it. I’ve done the minor chore of switching, or at least checking, each year. That ensures I am on a tariff acceptable to me and save money. Just like shopping around for anything; it is a part of life. The “old” are far more capable than you seem to give them credit for. It is the vulnerable, of whatever age, we should be helping.

There is not a clear demarcation between those who are vulnerable and the rest of us. Thankfully this is being recognised. People matter more than money, at least in my opinion.

We have to “draw lines” to know who to help. Ofgem have attempted to do this https://www.ofgem.gov.uk/about-us/how-we-work/working-consumers/protecting-and-empowering-consumers-vulnerable-situations

Malcolm – If you discuss the issue with people who help the elderly I think you will see that there are many who find it increasingly difficult to cope with what is a simple matter to you and me. Some people are not very good with money at any age, as can be seen from the number who struggle to make ends meet. I think we should care more about people other than ourselves.

wavechange, first, I am involved with the elderly and second I believe those who struggle in any way should be helped. I think this should be done personally and locally ideally; a job for individuals and local organisations to support. Many people will help others; what is often missing is the organisation and communication to allow them to do that. Families are normally best at this of course.

I agree with supporting others but unless you are suggesting we help with paying bills we need to do something about energy companies charging many poor people more for their energy thanks to the standard variable tariffs. There’s various ways that this could have been addressed but at least the price cap will help.

I’ve commented on one way I would see to make energy charges fairer. However, in answer, I would help people to find better tariffs and to switch. I’ve done that a number of times.

I am well aware of your suggestion but price capping has been chosen as the way forward. I’m assuming that the people you have helped were not ‘vulnerable’ but might not have switched without your encouragement. It’s one approach but I would prefer to put an end to exploitation by the energy companies.

I doubt any “price cap” gives a fair deal. I think anyone who cannot help themselves in a particular situation might be described as “vulnerable”. I think our views have been adequately expressed.

I’ll agree there, Malcolm. I doubt that either of us will have much influence.

A large amount of energy in scotland is generated by water – pumped storage such as Loch Awe. In Wales there is the Trawsffyneth pumped generation of electricity. We are told that Wind is cheaper.
Why are these generated kilowatts charged at oil prices???

No matter how energy is generated it is all charged at a standard rate. This was to ensure that new technologies in the marketplace were not disadvantaged by better established systems. There is no doubt that, when they first came into being, sustainable energy sources were not particularly economical – quite the opposite. That the situation has now reversed and renewables are propping up their ‘dirty’ predecessors the standard pricing keeps the old technologies viable until such times as they become surplus to requirement. As and when the cheaper energies can meet needs, prices will come down (and/or profits go up).