Government extends cap on energy bills

The government has announced that it will extend the Energy Price Cap until the end of next year. The Energy Price Cap extension until end of 2021 will protect around 11 million UK households from being overcharged.

The Energy Price Cap shields those least likely to shop around for the best deals, including the elderly and most vulnerable from being charged excessive prices.

Since its introduction in January 2019, the cap has saved customers around £1 billion a year, equivalent to around £75-100 a year for typical households on default energy tariffs.

An additional 4 million households with prepayment meters on default tariffs will also come under the protection of the cap from January.

Business and Energy Secretary Alok Sharma said “The Energy Price Cap has been vital in ensuring customers do not pay too much on their bills, which is why we are keeping it in place for at least another year.”

“Switching energy supplier to find the best value deals is still the best way to save on bills, but this government is determined to make sure all customers are treated fairly and get the protection they deserve.”

In addition to the price cap, millions of customers have been able to benefit from lower bills as the numbers of those switching to cheaper tariffs has increased and the rollout of smart meters has progressed in recent years.

A total of 2.8 million electricity and 2.1 million gas customers switched supplier in the first 6 months of 2020, building on record numbers of households switching to cheaper tariffs in 2019, the first full year of the Energy Price Cap.

However, more than half of customers are still on standard variable or default tariffs, where, in the absence of the cap, they would likely still be paying excessive charges for energy use.

In August, the independent energy regulator, Ofgem, recommended an extension to the cap following a review into the market. Today’s announcement follows that recommendation.

The Energy Price Cap extension is the latest government measure to help vulnerable customers with their energy bills and follows particular support during the coronavirus pandemic.

Energy suppliers have given prepayment and pay-as-you-go customers support when they faced financial distress.

Those with prepayment meters have also benefited from a price cap that is in place until the end of the year.

Today’s announcement means a further 4 million households with prepayment meters on default tariffs will continue to be protected from excessive prices by the wider Energy Price Cap once the Competition and Market Authority’s Prepayment Meter Cap expires at the end of 2020.

Jonathan Brearley, Chief Executive of Ofgem, said “The Secretary of State’s announcement means that 15 million households will continue to be protected under the price cap and will pay a fair price for their energy in 2021.”

“Although those protected by the cap are paying a fair price, they can also reduce their energy bills further by shopping around for a better deal.”

Commenting on the announcement Peter Earl, Head of Energy at comparethemarket.com, said “It’s encouraging that the government recognises that the best way for people to save on energy bills is by switching. A big problem with the price cap, however, is that since it was introduced in 2019 the number of people switching energy supplier has declined – and as a result, millions of households on standard variable tariffs are potentially paying hundreds of pounds more than they could be for an essential utility. There is a real risk that the British public interpret the government’s extension to the price cap as an endorsement that the cap is an affordable price to pay for energy, when it reality it should be considered the absolute ceiling that people pay.”

“With millions more people at home due to widespread regional lockdowns and an increase in the number of people working from home, it is important for households to shop around for a better value energy deal to avoid a bill shock this winter. There are currently 191 energy tariffs on the market cheaper than the £1,042 price cap, and as the temperature drops and people turn the heating up a notch or two, switching to a competitively priced one or two year fixed-rate deal is an effective way for households to lock-in a cheaper energy deal.”