Move to cap ‘rip off’ energy bills

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Legislation to crack down on expensive energy tariffs is being introduced to Parliament on Monday.

The prime minister said it would protect 11 million people paying “rip-off” energy tariffs.

The law will allow energy regulator Ofgem to limit what companies can charge customers for their standard variable tariffs.

Energy UK, representing energy suppliers, said it was vital the cap did not stifle competition.

The government says the Domestic Gas and Electricity Bill will limit the cost of firm’s standard default tariffs until 2020. Following that, the cap may be extended on an annual basis until 2023.

Prime Minister Theresa May said: “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.”

The move is an admission that encouraging consumers to regularly switch providers to pay less has not been as successful as hoped.

About a third of households are charged a variable price for their energy at a default rate set by their energy company, because they have not chosen to shop around for a cheaper fixed-price deal.

The Department for Business Energy and the Industrial Sector said that the energy market wasn’t working and that domestic customers of the “Big Six” energy companies were paying on average £1.4bn a year more than they would in a truly competitive market.

“We’re going to give powers to Ofgem to make this energy market work for everybody by winter 2018, to set a maximum absolute cap [to be] paid by customers on standard variable and default tariffs, the tariffs that the majority of households are on and sometimes don’t even know it,” Claire Perry, energy and clean growth minister, told BBC Radio 4.

The Business Department says the average annual savings between standard tariffs and fixed rate deals could be up to £300.

The government intends the cap to be in place in time for next winter.

It is separate from Ofgem’s safeguard tariff, which is already helping some five million vulnerable customers pay lower prices.

Energy UK said it was important that the price cap reflected costs – most of which were outside their control, such as distribution costs and the wholesale cost of energy.

Lawrence Slade, chief executive of industry body Energy UK, said energy providers were concerned a cap would damage investment and competition.

“The risk of unintended consequences around caps is serious. What we have to do is, working with Ofgem and the government, is make sure the cap has sufficient headroom to allow competition to continue,” he told Radio 4.

One of the largest energy providers, British Gas, has made moves to abolish standard variable tariffs in expectation of the cap. Ms Perry said the legislation would still apply to companies that “try to game the cap” by altering labels.

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