May promises legislation to cap energy bills

Prime minister pledges draft legislation to be published next week

In her speech closing the Conservative party conference in Manchester today, the prime minister announced the government will be publishing draft legislation to introduce a cap next week.

“This government will publish a draft bill to put a price cap on energy bills. Bringing an end to rip-off energy prices once and for all,” she told party delegates.

But the speech contained no further details of how the mooted price cap would work.

May’s promise to legislate follows growing pressure on the issue from MPs, 212 of whom have now signed a letter calling for energy prices to be capped.

Ofgem said in August that it would publish proposals for a safeguard cap to protect vulnerable customers, like those eligible for a warm homes discount.

Legislation enables the government to sidestep the energy regulator’s concerns that it lacks legal powers to introduce a broader market-wide cap.

However the pledge was slammed by CBI director-general Carolyn Fairbairn.

She said: “Affordable energy matters for everyone and particularly for the most vulnerable. However, today’s announcement is an example of state intervention that misses the mark. Market-wide price caps are not the best answer.

“Suppliers are already acting, providing support to those on pre-payment meters, and continued action to phase out standard variable tariffs would benefit a wide range of consumers, including those on the lowest incomes.”

Lawrence Slade, chief executive of Energy UK, said that over recent years the rate of switching between suppliers had increased and the number of customers on standard variable tariffs (SVTs) had fallen.

“It is important that we do not risk halting this growth of competition and engagement in the market,” he said, adding that the most effective way to tackle fuel bills was improved energy efficiency.

A spokesperson for SSE said that the company “look carefully” at the government’s proposal.

“Detailed consultation is required to help avoid any unintended consequences. SSE believes in competition not caps, so if there is to be any intervention it should be simple to administer, time-limited, and maintain the principles of a competitive energy market to best serve customers’ interests,” added the spokesperson.

But the government’s move was welcomed by John Penrose MP, who was one of the organisers of the letter calling for a curb on energy prices.

“The PM is absolutely right to protect households from rip-off energy bills with an energy price cap if Ofgem are too spineless to act,” said Penrose.

“She’ll have plenty of support, with over 200 cross-party MPs and most of the ‘challenger’ energy firms supporting a relative price cap.  I look forward to seeing the Government’s draft bill next week.”

Gillian Guy, chief executive of Citizens Advice also backed the price cap legislation pledge but said that immediate action was needed to help low income households with their fuel bills this winter.

“We’d encourage the government to look at what it can do to help households in the short-term, recognising that legislation can take time, including ensuring that protection for low-incomes pensioners and families comes into force this winter.”