Government faces fresh calls to scrap energy price cap

The price comparison website Compare the Market has become the latest organisation to call on the government to scrap the price cap on default energy tariffs.

The company has urged the new minister of state at the Department for Business, Energy and Industrial Strategy (BEIS), Kwasi Kwarteng, to review the cap as a matter of “priority” on the basis it is “causing confusion amongst consumers” who wrongly believe that their total energy costs are being limited.

According to Compare the Market, the gap between the current level of the cap and the average price of the cheapest available fixed price tariffs has widened to £303 since April.

Its head of energy, Peter Earl said the policy has “kept customers stuck on standard and default tariffs facing artificially high prices”.

“Furthermore, it has encouraged inertia from those on standard and default tariffs, who assume that they are protected from high prices under the cap scheme,” said Earl.

“Many consumers wrongly believe that people’s bills are capped under the scheme – in fact, it is only the unit price of energy that is capped. The concern is that cost-conscious consumers could be using more energy under the cap and in for an expensive shock when their bill lands,” he added.

“The regulator is due to announce the new energy price cap level on 7 August, with the industry largely expecting the cap to fall from 1 October when the new cap level comes into effect. Kwasi Kwarteng should urgently review the effectiveness of the price cap. There is no doubt in our minds that it should be scrapped sooner rather than later.”

Last month, the Confederation of British Industry (CBI) also called on the new government to remove the cap and reinstate the “market forces that can best deliver value and service for consumers”.

A survey for Utility Week in April found that 68 per cent of respondents agreed the cap should stay, with a similar number feeling it had been necessary to bring it in.

This is despite the fact that the cap has already seen one hike in price – a £117 increase introduced on 1 April, taking the ceiling for a typical dual fuel customer to £1,254.

In response, the new minister for energy and clean growth, Kwasi Kwarteng said: “The energy price cap has ensured that consumers pay a fair price for their energy. With more than 60 energy suppliers now competing in the retail energy market, consumers who switch can make significant savings on their annual bills.

“The price cap has also encouraged suppliers to examine their costs and provide services more cheaply and efficiently.”