May 10, 2017
Yesterday the Conservative Party outlined their policy to cap energy bills, despite the idea of any form of capping being rejected by the Competition and Markets Authority (CMA) last summer.
Based on the way pre-payment meters have worked since April, it would be an "absolute" cap.
The Tories rejected the idea of a relative cap, which would limit the difference between the cheapest fixed-price deal and the more expensive Standard Variable Tariff (SVT) to a set percentage. That model was particularly controversial, as critics said suppliers would simply increase the price of fixed-rate deals, to maintain the differential with SVTs.
How would it work?
If the Conservatives win the election, the regulator Ofgem would be asked to introduce a price cap along the lines of one introduced in April to cap prices on households with pre-payment meters.
As many as 4.5 million people use prepayment meters for electricity, while 3.5 million use them for gas. Prepayment customers face higher energy bills. The CMA ordered a cap on their charges because such households do not benefit from the competition that exists for all other consumers.
Under this system, the CMA has come up with an initial maximum figure for prices in each region of the UK, usually in line with the cheapest existing pre-payment meter tariff.
That number is adjusted every six months, taking into account wholesale energy costs, inflation, environmental obligations and the cost of transporting energy around the network.
The Effects of a Potential Cap
Consumer groups are generally opposed to the idea, as it would tend to give consumers a false sense of security. In New Zealand, a price cap resulted in a loss of competition and energy prices going up before the cap.
Householders might think they are getting a good deal, so would make even less effort to switch suppliers. This makes the market less competitive which isn't good for consumers.
The news of this policy comes in a month where thousands of UK households will be moved on to supplier's standard tariffs this month as their fixed rate tariff is ending. Consumer group Which? found a total of 17 fixed deals from 10 suppliers expire this month, including a £396 jump for customers with SSE, £373 for Scottish Power, £358 with EDF and £236 with Npower.
The smallest increase is the £79 extra that people on another Scottish Power fixed tariff will pay when moved on to the company's standard variable tariff.
About two-thirds of people - 17 million - are on standard variable tariffs, which are what the Conservatives have pledged to cap. Although the Energy Secretary, Greg Clark, admitted that energy prices would still go up under the proposed price cap. He then caused outrage by saying he had never switched energy supplier because it was "too much hassle" despite years of the UK Government promoting how simple it is to switch energy supplier and that it is the best way to save money on your energy bills.
This is an open invitation to Greg Clark. We'd love to have you visit our head office. As Energy Secretary, you are in a position to make policies and are paid by the taxpayer to do so. You therefore should have experience of just how effortless the energy transfer process is before dismissing it to the electorate.
Switching energy supplier is a simple and straight-forward process and it's a quick way to save money on your energy bills. If you can't do it online, you can call one of our advisers and they'll compare the tariffs available to you. By offering you free and impartial advice they will help you secure the best deal for your household. Call 0800 849 7077.
Posted on May 10, 2017 at 02:26 PM