Government extends price cap

Business secretary Alok Sharma has announced the government will extend the default tariff cap until the end of 2021.

The cap, which was brought in on 1 January last year, is set by Ofgem and reviewed every six months.

Ofgem announced in August that due to the impact of the coronavirus, it would not recommend lifting the cap before the end of this year.

The regulator said however that a drop in wholesale energy prices due to the pandemic resulted in the cap being cut to its lowest level yet and from 1 October the default cap fell by £84 to £1,042, while the cap for prepayment meter (PPM) customers fell by £95 to £1,164.

In an announcement this evening (19 October), Sharma said: “The energy price cap has been vital in ensuring customers do not pay too much on their bills, which is why we are keeping it in place for at least another year.

“Switching energy supplier to find the best value deals is still the best way to save on bills, but this government is determined to make sure all customers are treated fairly and get the protection they deserve.”

Meanwhile, Ofgem chief executive Jonathan Brearley said: “The secretary of state’s announcement means that 15 million households will continue to be protected under the price cap and will pay a fair price for their energy in 2021.

“Although those protected by the cap are paying a fair price, they can also reduce their energy bills further by shopping around for a better deal.”

The latest switching figures, released earlier today, showed a 19 per cent year-on-year drop in activity for September.

The Department for Business, Energy and Industrial Strategy (BEIS) says that since the cap’s introduction, it has saved customers around £1 billion a year, equivalent to around £75-100 annually for typical households on default energy tariffs.

Last month Ofgem admitted it was considering increasing the default price cap due to the increase in customers being unable to pay their bills.

In a recent interview with Utility Week, the regulator’s former chief executive Dermot Nolan said he found this “painful” but accepts that his former colleagues had little choice.

Asked whether he considered the introduction of the price cap a success, he said: “It was a tough cap and we said it would be. Nobody has really made very much money in the energy retail market in the past few years. I don’t want to unsympathetic but I think that’s ok. Amazon has made very little profit throughout its entire history despite its value, Google didn’t make profits for a long time.

“The important thing is that there has been new entry and relatively well funded new entry by firms that aren’t looking for a quick profit – they see themselves as tech companies that are there to provide a solution.”