The government has confirmed it’s draft legislation to create a price cap in the energy market.
Responding to the announcement Gillian Guy, chief executive of Citizens Advice, said: “The runaway costs of default energy tariffs need to be tackled, and this draft bill is an important step towards an energy market that works better for consumers. We look forward to working with the select committee and BEIS to make sure the legislation succeeds in its mission to ensure no one gets ripped off simply for being on a default tariff.”
“We agree with the government that an absolute cap is a better option than a relative cap, and will help to ensure the market remains competitive so that consumers who shop around can still get a good deal. However, a cap on prices isn’t the end of the story when it comes to fixing the broken energy market, which is why it is vital that Ofgem takes into account the need to protect vulnerable consumers, encourage efficiency, and incentivise switching when it sets the cap. This is particularly important given the temporary nature of the measures.”
“It’s also crucial that Ofgem monitors the impact of these changes closely, and is ready to take action quickly if it’s not having the intended effect on household bills.”
Citizens Advice’s analysis has found that over the last year dual fuel bills for people on the standard variable tariff rose by £89 – three times the rate of inflation.
Peter Earl, Head of Energy at comparethemarket.com, said “A price cap will not fix the broken energy market. At best, it is a short-term solution which could see some households on the worst value tariffs pay a little bit less for their energy. At worst, it could simply turn people off ever looking at an energy bill again. Furthermore, it won’t have any impact on energy bills this winter, so consumers need to take action now to prevent being impacted by spiralling energy costs.”
“For a sustainable, functional market, consumers need to be engaged. There are over 17 million households on standard variable tariffs missing out on over £5.5 billion in savings every year. We need to encourage customers to move on to cheaper, fixed tariffs and save hundreds of pounds a year. One way to do this is the introduction of an energy billing revolution. People are confused by an overload of energy jargon in their bills and so forcing energy suppliers to adopt a simple, standardised, jargon-free bill format is an essential step.”
Stephen Murray, energy expert at MoneySuperMarket, said “Today’s release of a draft bill from the government is just the start of what’s likely to be a long journey to get this energy price cap over the line. Realistically, it could be Spring 2019 before customers on standard variable tariffs start to see their bills come down. The choice for customers is simple: wait 18 months, incur the likelihood of more price increases and then potentially save £100, or switch hassle-free today to a competitive fixed rate tariff and save £250, or possibly more.”
“There’s no need to wait for political intervention – you can take matters into your own hands now and secure cheaper energy bills going into the cold winter months.”
Eon UK chief executive Michael Lewis says A universal price cap for standard variable tariffs will be harmful to consumers over the long run. Intervention in the retail market will reduce competition, deter engagement and put the brakes on innovation, he told delegates at the Utility Week Congress in Birmingham.
“We don’t have a price problem in the UK market. What we have is an engagement problem. A blanket cap on the whole market will have the opposite effect. It will reduce customer engagement in the market; it will reduce choice and it will reduce the opportunity for new innovative competitors to come into the market.”
“Indeed, that’s what the Competition and Markets Authority concluded; that any short-term gains to customers from a blanket price cap will outweighed by long-term detriment. That’s what we believe and why we are very much opposed to a one-size-fits-all blanket cap.”