New Energy Price Cap Could Reduce Bills for 11 Million Households
- New legislation will cap poor value energy tariffs
- “Force energy companies to change their ways”
- Could save you £300 a year
- Aims to help the elderly and those on lower incomes
Legislation designed clamp down on expensive and poor value energy tariffs will be introduced to Parliament today, and it’s expected to benefit 11 million households.
If passed, it will allow energy regulator Ofgem to limit what energy companies can charge customers for their standard value tariffs.
This will essentially mean that energy bills will fall for millions of families who are on standard value tariffs, as it is this type of energy bill that companies frequently over charge for.
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.”
The idea of energy price freezes was first introduced by the former Labour leader Ed Miliband in 2013, after concerns over deliberate price hikes by energy companies first emerged, and was criticised by the Conservatives at the time.
After a 2016 report was published, finding that consumers were paying over £1.6 billion a year more than they should for energy bills, the Conservatives announced a universal price cap as part of their 2017 manifesto.
About a 40% of households are charged a variable price for their energy at a default rate by their energy company, because they have not chosen to shop around for a cheaper fixed-price deal.
It was found that consumers could save an average of £250 a year by switching, but despite this many don’t shop around for new or better deals ever.
Business and Energy Secretary Greg Clark said, “Energy prices for millions of households on default tariffs are still too high.
“Our new price cap will guarantee that consumers are protected from poor-value tariffs and further bring down the £1.4 billion a year that consumers have been overpaying.”
The Business Department says the average annual savings between standard tariffs and fixed rate deals could be up to £300, so households could notice big savings if the bill is passed.
After 2020, Ofgem will recommend to the Government whether the cap should be extended on an annual basis to 2023.
Shadow business secretary Rebecca Long Bailey said, “Today’s action, whilst welcome, will do little to comfort customers facing price hikes now, after the Government delayed this Bill by over a year.
“The Government promised action on energy bills a year ago, yet energy costs are still spiralling and four million households live in fuel poverty.
A price cap is simply a temporary sticking plaster and the Government must realise that they need to do much more to fix our broken energy market.”
There has been some concern that the cap could damage competition and limit investment.
Lawrence Slade, chief executive of industry body Energy UK, said, “The risk of unintended consequences around caps is serious. What we have to do is make sure the cap has sufficient headroom to allow competition to continue.”
As of yet, it it is unclear how flexible there will be on the cap, but it is designed to prioritise the needs of lower income families and the elderly, over the profits of energy companies.
What do you think of this? Is it a good idea? Let us know what you think in the comments.