The
government has just announced that new legislation will prevent customers from being ripped-off with extortionate energy tariffs, a move which is expected to protect eleven million customers. The Domestic Gas and Electricity Bill (which has
just been introduced into Parliament) should be implemented "as soon as
possible so that customers get the protection they need by the end of this year."
The new law
will allow the energy regulator Ofgem to limit how much companies can charge
customers for their standard variable tariffs. The law will limit the cost of
standard default tariffs until 2020. Following that, the cap may be extended on
an annual basis until 2023.
Rachel Reeves the MP for Leeds West who chairs the Business Committee in the Commons,
said: "Energy consumers have been overcharged for too long and the
government now needs to quickly ensure this legislation is passed in time to
protect customers next winter."
What is a
standard variable tariff?
When
fixed-term deals come to an end, the customers are usually automatically moved
to a standard variable tariff, which applies to eleven million households. 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.
But the new
legislation, once it has passed through Parliament, will cap these variable
tariffs, and this will be overseen by Ofgem who claim that the price
difference between the average standard variable tariff and the cheapest rate on
the market is about £308.
In the
meantime, some suppliers are moving towards abandoning variable tariffs voluntarily.
Ofgem has also changed the rules to allow suppliers to default customers on to
another fixed deal. British Gas, E.On and Scottish Power have all made moves to
abolish standard variable tariffs, although customers who do not opt for a
fixed-price rate will still be moved onto a default tariff.
But despite
this, at the moment customers are still likely to be better off by searching online
and switching themselves.
The 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 Department for Business Energy said that domestic customers of the ‘Big Six’ energy
companies were paying around £1.4 billion a year more than they would in a truly
competitive market.
According to Claire Perry, the
Energy and Clean Growth Minister: "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 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."
But the suppliers aren't happy…
Not everyone
has supported this move to help customers. Energy UK (which represents the
major suppliers) 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, CEO of the industry body, said that energy providers were concerned a
cap would damage investment and competition. According to him: "The risk
of unintended consequences around caps is serious. What we have to do is,
working with Ofgem and the government, make sure the cap has sufficient
headroom to allow competition to continue.”
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