Letter from the Editor: SVTs are a busted flush

It’s no longer a question of “if”, but of “when” and “how”. The pressure for a market-wide price cap on standard variable tariffs (SVTs) has reached boiling point. John Penrose is a senior Conservative MP: for him to be leading a campaign for such a cap, with the support of one-third of his fellow MPs right across the House, puts the government in an almost impossible position – particularly as the price cap he is campaigning for was promised in the Conservatives’ own manifesto.

Inaction is not an option. Indeed, the only option for ministers, other than to legislate for a price cap themselves, is to force Ofgem into doing it. Yet the regulator has been repeatedly clear in its belief that a market-wide price cap, without the backing of legislation, would be open to legal challenge. Ofgem chief executive Dermot Nolan told Utility Week earlier this month that the regulator’s mooted extension of the current prepayment price cap to all vulnerable customers is a clear fit with its duty to protect such customers – the implication being that a wider price cap is not. The delay in releasing the consultation for the vulnerable customers price cap suggest frantic negotiations behind the scenes.

But let’s face it: a market-wide price cap is a political act, with a political imperative, for political objectives. If ministers want to introduce it, they should stand up and do it themselves rather than try to twist the arm of the regulator. Ofgem is, after all, supposed to be politically independent and a facilitator of a competitive market.

Of course, such machinations mean little to the companies themselves. The reality is, a price cap now seems inevitable and as energy secretary Greg Clark told the Conservative party conference this week, the end of the road is nearing for SVTs. Eon got out in front of the move last month with its announcement that SVTs will be scrapped for some of its customers. Centrica looks set to follow shortly. The name of the game now is coming up with a replacement for SVTs that is fair, sustainable and facilitates diversity, flexibility and engagement in the market. Then, perhaps, the energy sector can finally put SVTs behind it.