UK Markets close in 1 hr 26 mins

New energy price cap will help 1 million households - are you eligible?

An energy price cap for 12 million UK households might not be in place until next winter (Owen Humphreys/PA Images via Getty Images)

Theresa May’s flagship plans for an energy price cap this winter look set to be derailed until next year.

Ofgem, the energy sector watchdog, says it is unlikely to be able to enforce an all-encompassing cap for 12 million households before legislation is passed – and that means most likely next winter.

However, a limited expansion will see an additional 1 million households moved on to cheaper deals this winter.

Who benefits this winter, then?
About 1 million households who currently receive the Warm Home Discount will be £120 a year better off from this winter under the Ofgem action.

They will see an energy price cap from February – an extension of the cap already in place for prepayment meter customers. This will also apply to another 2 million vulnerable households the following winter.

MORE: Thousands of pensioners ‘risk home repossession’ as government axes mortgage benefit

What is the Warm Home Discount?
This is a £140 direct rebate to the electricity or gas account of the poorest households in the country.

The ‘core group’, as defined by Ofgem, is pensioners in receipt of the Pension Credit Guarantee Credit.

The ‘broader group’ is a rebate by suppliers to fuel-poor customers, on a limited number, first-come, first-served basis. It usually applies to a person who is on some form of benefit and who has to care for a child under the age of 5.

Most obligated suppliers open their applications over the summer and aim to pay out the rebates over the winter.

Prime Minister Theresa May wants to see price caps introduced for 12 million energy customers (Carl Court/Getty Images)

Why does Theresa May feel this cap is necessary?
When customers’ fixed-term deals end they usually automatically move to a Standard Variable Tariff, which is usually more expensive.

While switching has become easier and more popular, millions of UK households do not hunt around for better deals. This particularly applies to the elderly, who it is known, tend to stick with the same supplier and are often most disadvantaged.

MORE: Water firm United Utilities hit with £300,000 fine over contamination

It is estimated 12 million households are on SVTs. Ofgem says the price difference between the average standard variable tariff default deal from the six largest suppliers and the cheapest rate in the market recently hit more than £300.

What’s her big idea, then?
The prime minister wants to impose price caps on SVTs, overseen by the regulator. But Ofgem says it cannot act without the support of legislation passed by Parliament.

While draft legislation is supposed to be introduced this week, it’s unlikely to be properly debated and voted on for months – meaning the full implementation of the cap will not be ready until next winter, at the earliest.

MORE: Watchdog extends energy price cap to one million more UK households

What happens in the meantime?
Ofgem now allows suppliers to automatically put customers on to another fixed deal – and they should be on the same rate as before or a cheaper tariff than the variable rate.

Some suppliers, conscious of the bad headlines, are talking of dumping the variable tariffs but there has been no definite moves announced yet.

In the meantime, bill payers are encouraged to look around for better deals through the various switching services or to contact their supplier to check if they can get better rates.