The energy price cap that Theresa May promised us is here, and it could save a lot of people money… so why should we be wary?
What is happening?
A price cap of £1,136 a year has been introduced by industry regulator Ofgem. This means that 11 million households currently paying the default or standard tariff rates from their energy supplier will see a drop in their energy bills.
Theresa May, the conservative government, and Ofgem.
Mrs May and Tories promised the price cap as part of their campaign last year to remain in office.
Ofgem, or the Office of Gas and Electricity Markets, are the body set up to regulate the energy industry; they’re the ones that makes adjustments to the rules on what and how your energy company charges you.
A huge part of what Ofgem does is attempting to improve awareness of what’s available and encourage the general population to engage more fully with the energy market. Until recently, they wouldn’t have had the authority to change something of this magnitude, but their legal powers were increased this summer with the Domestic Gas and Electricity (Tariff Cap) Act, in order to bring about this restriction.
Who will it affect?
More than half of all households in Britain are on default tariffs, with the vast majority of them not realising that they’re paying more than they need to be. The last few years, and particularly the last few months, have seen more and more rises to these default tariffs, meaning that consumers are eating up rising costs with nothing to prevent energy companies from consistently hiking up prices.
When your fixed-term contracted energy tariff finishes, often will find that you are quietly moved onto the company’s default tariff, which is more expensive. It’s actually pretty sneaky and it’s something we do not support.
The biggest problem is that the overwhelming majority of people in this situation are what Ofgem refers to as ‘vulnerable customers’. These are consumers who may be unable to switch energy deals, or find it difficult to do so; primarily it is low income families and the elderly. So instead of the big energy bills going to those that can afford them, those least able to pay are being hit with the highest bills.
The energy price cap is designed to prevent this kind of spiralling energy cost for people that, most of the time, never signed up for the tariff and only landed there unconsciously. Previously this year they have done this by extending the safeguard tariff (a system which caps default rate standard energy tariffs for the most vulnerable people), but this change is a lot bigger, saving money for a greater percentage of the population.
The price cap has been set at £1,136 a year for “typical usage”, which is pretty much bang on what we were expecting. This equates to an average of £75 per household, but the actual figure for you will depend on your current supplier and costs.
Ofgem claims that a typical consumer on the most expensive tariffs would save over £120 per year.
What’s the catch?
Just because it’s a better deal than before, does not mean it’s a good deal. We cannot stress this enough; it is still going to save you money to switch to another tariff.
There are dozens of tariffs across the 63 UK energy companies that would offer you a much, much better deal than any default tariff, even after the cap. Standard tariffs have no fixed start and end dates and therefore no exit fees, so you can switch today and see your bills start dropping.
If you’re concerned about signing up to a fixed-term contract, only to forget about it and end up right back on the default tariff in a year or so, then there are several options for companies that will automatically switch you once your contract finishes. Labrador and Look After My Bills both offer this service without costing you a thing.