Almost 1 million vulnerable households on poor value deals will make big savings on their energy bills from this month after Ofgem extended the prepayment safeguard tariff. Customers will initially make annualised savings of around £115 on average because suppliers have to cut their prices to below the level of the safeguard tariff cap.

These savings will fall to around £66 a year from April when the level of the safeguard tariff rises due to higher energy costs. The safeguard tariff stops suppliers from charging customers too much and ensures any price increase is justified by rises in underlying costs. 

In April last year, Ofgem introduced the safeguard tariff for over 4 million prepayment customers, who also find it difficult to get a better deal and are more likely to be vulnerable. After Ofgem extended the safeguard tariff to almost 1 million vulnerable customers last week with over 5 million households now protected. Ofgem adjusts the level of the cap twice a year based on a pre-defined methodology set by the Competition and Markets Authority to reflect the estimated underlying costs of supplying energy.

From April 1, the level of the safeguard tariff will rise by approximately £57 a year from £1,031 to £1,089 for a dual fuel customer who uses a typical amount of energyThe increase in the safeguard tariff is mainly due to higher wholesale energy costs and policy costs to support low carbon forms of electricity generation. Customers are still better off under the safeguard tariff which stops suppliers from charging customers too much.

When Ofgem introduced the safeguard tariff for prepayment meter customers in April last year, their bills fell by around £60. While higher energy costs will push up the level of the safeguard tariff in April this year, they will still pay less than they would if they were not protected.

For example, their bills, which used to be amongst the highest in the market, are still expected to be around £35 lower than the current standard variable tariff paid by direct debit customers.

 Dermot Nolan, chief executive of Ofgem, said: “Protecting vulnerable customers is a priority for Ofgem. That’s why we have extended the prepayment safeguard tariff to almost 1 million vulnerable households, which will help deliver a fairer, smarter and more competitive market for all consumers. Even when energy costs rise, people on the worst deals are better off under the safeguard tariff as they can be sure that they are not overpaying for their energy and any rise is justified.”

 “Ofgem is working with the Government to protect all customers on poor value default deals, such as standard variable tariffs, from being charged too much for their energy as soon as possible. Our aim is to protect those who do not switch while making it easier for those who do to get a better deal.”

 

Energy and Clean Growth Minister Claire Perry said “It is a positive step that a million vulnerable consumers are now being protected from unfair energy price rises through the energy cap. But energy tariffs are still too high – customers of the Big Six energy suppliers are overpaying by up to a staggering £1.4 billion a year. This is totally unacceptable and why government will continue to go further – including by bringing in new laws in the forthcoming energy Tariff Price Cap Bill to put an end to rip-off standard tariffs.”