Yahoo Finance Ofgem admits full energy price cap 'unlikely before next winter' despite Government demands
The full brunt of the Government’s proposed cap on energy prices may only be felt towards the end of next winter, offering suppliers a stay of execution during which they can move customers to better value deals.
The regulator, Ofgem, today vowed to extend its price cap for customers using pre-payment meters to include 1 million households considered socially vulnerable.
The move comes ahead of Government’s bid to compel Ofgem to take tougher action by legislating stronger powers for a cap on bills for 15 million households, which is expected on Thursday.
Prime Minister Theresa May said: “I have been clear that our broken energy market has to change – it has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much.
“Today’s publication of draft legislation is a vital step towards fixing that, and in offering crucial peace of mind for ordinary working families all over the country.”
But Dermot Nolan, Ofgem’s chief executive, admitted its own cap will only take effect from February and that a legislated market-wide clampdown could take far longer.
Mr Nolan said a “reasonable guess” on the timing of a price cap would include a 50 to 60 day statutory consultation with industry and 5 months to enact. The length of the legislative process is not known, raising concern that the full cap might not be in place next winter either.
In the meantime, Britain’s largest energy companies will face pressure to move customers away from standard variable tariffs (SVTs) which are priced above better value fixed deals.
But Ryan Thomson, from Baringa Partners, said there are already signs that the market “may well correct itself before the government can apply any industry wide price cap”.
The latest figures from Energy UK show that customer switching between suppliers has climbed to record levels. In September the number of customers choosing a better deal surged 46pc above the same month last year to bring the total number of switches to 4 million this year.
Ofgem figures have also shown a healthier market. The regulator said consumer engagement has increased from 37pc in 2015 to 41pc in 2017, with a third of switchers changing supplier for the first time in the past 12 months.
Scottish Power and Eon UK have both signalled plans to move customers away from SVTs in recent weeks. The pair will roll customers at the end of a fixed-rate deal onto a new fixed deal rather than a default tariff.
British Gas, the country’s largest supplier, has also called for standard variable tariffs to be scrapped entirely rather than capped.
But both the industry and regulator are likely to remain under intense scrutiny after politicians called for end to so-called "rip-off tariffs".
Business Secretary Greg Clark warned that Ofgem’s move did not go “far enough or fast enough”.
“I think it’s important that consumers who are overpaying should be given some relief from that. That’s why I will proceed and bring forward legislation later this week that will compel them to do that,” he said.
John Penrose, a Conservative MP, added that the 17 million households on SVTs “shouldn’t have to wait up to two years for the cavalry to arrive”.
“We need faster routes to deliver our pledge. We should look at using secondary legislation to get this through Parliament quickly and end the rip-off before the cold winter months start to bite," he said.
Mr Penrose has long advocated a 'relative price cap', which caps the difference between a supplier's cheapest tariff and most expensive tariff to stop the majority of customers paying well over the odds.
"Two hundred and thirteen cross-party MPs and most of the 'challenger' energy firms are supporting a temporary, relative price cap and will have no objection to this being sped through Parliament,” he added.
Around 70pc of homes pay more than they need to by remaining on an SVT deal due to historic lows levels of consumer engagement in the energy market.
Lawrence Slade, boss of trade group Energy UK, said it was "right we ensure protection for the most vulnerable” but warned that this should not “risk halting the growth of competition and engagement in the market, which is ultimately benefiting all consumers”.