Ofgem price cap plan a “big six stitch-up”

Regulator paves the way for safeguard tariff and suggests new help for switching

Ofgem’s plan to fix energy market failings and protect vulnerable customers has been described as a “big six stitch-up”.

The damning review was issued by John Penrose MP – a driving force behind the Conservative manifesto commitment to introduce a “safeguard tariff” to prevent “abusive” energy billing.

Responding to the publication today of Ofgem’s plans to remedy consumer detriment, especially for the most vulnerable in society, Penrose said: “Ofgem’s proposals will not end the energy rip-off for 17 million families, as we promised in our manifesto.”  

He claimed fewer than 3 million customers would benefit as a result of Ofgem’s intentions “and the remaining 14 million will see their energy bills rise as energy companies recoup the cost of the cap by milking the rest of us.

“This is a big six stitch-up and as Ofgem won’t help, parliament needs to step in and legislate instead,” Penrose concluded. His insistence that legislation is the best way to deliver on the Conservative manifesto pledge follows warnings from former regulator Stephen Littlechild that Ofgem does not carry the necessary powers to impose price regualtion on the market.

Labour’s shadow business secretary Rebecca Long-Bailey agreed that legislation ought to be used to deliver rigorous and wideranging price regualtion. She described Ofgem’s proposals as “watered down”.

Ofgem published its plan for delivering a “fairer, more competitive market for all consumers” after energy secretary Greg Clark wrote to the regulator’s chief executive, asking what he intended to do about the treatment of vulnerable customers and microbusinesses, and the excessive number of customers on standard variable tariffs.

Ofgem’s response revealed plans to consult on the implementation of a safeguard tariff which will extend the existing price protections enjoyed by prepayment customers to a wider vulnerable customer group. The plan also inlcuded suggestions for new rules for switching sites to make tariff comparisons more transparent and a new Ofgem service to help customers check the competitiveness of their energy deal.

Although Penrose slammed the proposals, consumer groups were generally more positive.

Citizens Advice, the statutory consumer champion in the energy sector, welcomed news of the price cap consultation.

The charity has long called for price protections to be offered to customers in receipt of the warm home discount. Today, its chief executive Gillian Guy said that Ofgem’s proposals “pave the way” for this move.

She added: “Capping energy bills for the poorest pensioners and families on standard variable tariffs will help those who have been let down the most by a broken market.”

In addition, Guy said suppliers should be issued with annual targets “for getting their customers off standard variable tariffs, and a deadline after which any who haven’t switched for three years would also have their bills capped”.

Which? echoed the response of Citizens advice, but Alex Neil, managing director of home products and services said that while steps to offer more help for the most vulnerable and to make switching easier are welcome, “people will question whether these interventions are enough to deliver an energy market that finally works for all consumers.”

Ed Kamm, managing director of independent supplier First Utility agreed that Ofgem’s plan was a good start, but could go further.

“It is right and positive that Ofgem is focused on how to reduce the energy costs of vulnerable warm home discount customers, who are more likely to be on a standard tariff with the big six,” he said.

“However, more can be done, including automatically moving these customers onto their supplier’s cheapest deals and showing what savings they could make if they changed suppliers. No vulnerable person should be overpaying for their energy.”

Fellow independent supplier, Bulb Energy, also welcomed Ofgem’s intention to introduce a price cap, but said its plan to launch an indeptendent price comparison service was unnecessary. 

The supplier’s co-founder Hayden Wood said:”Too many people are being bamboozled by the complicated tariffs of the big six, it’s not clear that another comparison website will make things any better.”