Ministers have set out plans for the introduction of a new cap on energy prices in time for next winter as part of the government’s industrial strategy.
The legislation for the cap, which was published today, is intended to provide protection for around 11 million customers in addition to the five million currently protected by Ofgem.
Under new rules introduced by Ofgem this month, the regulator’s protections for customers using prepayment meters were extended to five million households, including those who are eligible for receive the Warm Home Discount.
Today’s announcement by the Department for Business, Energy and Industrial Strategy proposes to introduce new limits on how much energy companies can charge the estimated 11 million households who are currently on the highest energy tariffs.
The Domestic Gas and Electricity (Tariff Cap) Bill will put in place a requirement on Ofgem to cap energy tariffs until 2020. This will be an absolute cap in prices on what the government describes as “poor value tariffs” such as standard variable or other default energy tariffs.
The development of the cap has been called for by the Business, Energy and Industrial Strategy select committee, which said earlier this month that the “dysfunctional” energy market required government implementation.
“The energy market is broken. Energy is an essential good and yet millions of customers are ripped off for staying loyal to their energy provider. An energy price cap is now necessary and the government must act urgently to ensure it is in place to protect customers next winter,” committee chair Rachel Reeves said.
The government said today that the cap was part of a package of measures designed to deliver the government’s objective of clean, affordable and innovative energy as part of the Industrial Strategy, and would bring down the £1.4bn a year consumers have been overpaying.
“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,” said prime minister Theresa May. “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.”
In setting the cap, the government will instruct Ofgem to take into account the need to create incentives for suppliers to improve efficiency, as well as the need to set the cap at a level that enables suppliers to compete effectively.
Responding to today’s announcement, Reeves said a cap is “urgently needed”.
She added: “I’m pleased the government have listened and agreed to the BEIS committee’s recommendations to put an end to the overcharging of millions of customers stuck on default and standard variable tariffs. Our report was unanimously agreed by the committee, the bill has cross-party support, and both Conservative and Labour election manifestos included a commitment to an energy price cap. Energy consumers have been overcharged for too long and the government now needs to quickly ensure this legislation is passed in time to protect customers next winter.”