Prime Minister pledges to fix ‘broken energy market’ with Big Six price-cap

The UK government has published its draft legislation that would limit the price of standard variable tariffs paid by consumers for domestic gas and electricity suppliers and other default tariffs that customers are moved onto at the end of a fixed-term deal.

Around two-thirds of energy consumers in Great Britain are currently on this type of tariff – that is around 18 million customer accounts, four million of which are on pre-payment meters and are already protected by a price cap.

The proposed legislation would mean a cap would run until 2020 at which point the independent regulator, OFGEM, would recommend to Government whether it should be extended on an annual basis, up to expiry in 2023.

Prime Minister Theresa May said: “Our broken energy market has to change – it has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much.”

And Energy Secretary Greg Clark, MP, added: “People who show loyalty to well-known brands are paying hundreds of pounds a year too much on standard variable tariffs – and I am determined that this practice should end.

“This draft legislation sends a clear message to the industry that we will protect the interests of their customers if they do act now to tackle the detriment found by the Competition and Markets Authority.”

The Competition and Markets Authority review of the retail energy market found last year that customers of the Big Six suppliers on standard variable tariffs and other default tariffs are paying £1.4 billion a year more than they should because these tariffs.

MPs on the Business, Energy and Industrial Strategy Committee at the Westminster parliament will hold a one-off evidence session on 17 Oct 2017 about the different energy price cap proposals and their implications for customers, energy prices and competition, when they will quiz officials from OFGEM and Centrica plc – which owns the ‘British’ and ‘Scottish’ gas supply businesses.

Rachel Reeves MP, Chairman of the Business, Energy and Industrial Strategy Committee, said: “The energy market isn’t working.

“Millions of customers are stuck paying far too much for their gas and electricity with many facing exorbitant bills. 

“Vulnerable consumers face specific challenges when it comes to switching tariffs and finding cheaper options.

“We want to probe energy companies and the regulator about these proposals and ensure that the reality of a price cap can match the rhetoric by delivering lower bills for consumers and fixing the broken energy market”.

David Elmes, Head of the Global Energy Research Network at Warwick Business School, commented that the proposed price cap is ‘cranking the tensions between the energy companies, their regulator OFGEM and the Government up another notch’.

Professor Elmes said: “The worry is this is the end of efforts to encourage people to be active switchers and consumers of energy. Markets have failed.

“There is ultimately a big risk for future Governments as people may see prices as the Government’s responsibility. But it’s seen as a short term vote-winner today.

“The challenge to energy companies is that their ‘standard variable tariff’ is more expensive than the best deals on offer, even from the same company.

“But if customers don’t bother to switch to the better deal, is that the company’s fault, the customer’s fault, the industry regulator’s fault or the government’s fault for setting up a system that doesn’t achieve fair prices for most companies? “

13 Oct 2017

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