Energy cap will save up to £120 on your bills . . . but not for long

WATCHDOGS promise a cap on rip- off energy bills will deliver an annual average saving of £76 to 11million homes – worth a total of £1billion.

However, industry experts warn the real saving is likely to be much lower – perhaps just £19 – and the reductions will be short-lived.

The cap comes into effect on January 1. But rising wholesale energy costs mean it is expected to be pushed back up from as early as April 1 – wiping out most of the saving.

At the same time, the new capped tariff, which works out at an average of £1,137 a year for a typical user who pays by direct debit, remains £216 more expensive than the cheapest deal on the market.

The introduction of the cap follows a General Election promise by Theresa May to stop greedy energy firms taking advantage of millions of loyal customers who do not shop around for the cheapest deals. The decision was fought by the Big Six energy firms – British Gas, SSE, Npower, E.On, EDF and Scottish Power – which then went on to impose a series of price rises on their standard variable tariffs, taking them up by about £100 a year.

Energy minister Claire Perry welcomed industry regulator Ofgem’s decision to confirm the cap, saying: ‘In the past few months, loyal energy customers have continued to be hit by unjustified price rises on their already rip-off tariffs.

‘This Government has delivered on time its promise to protect 11million households from poor-value deals this winter.

‘Today’s final cap level brings greater fairness to energy prices and puts consumers at the heart of the energy market.’

Ofgem chief executive Dermot Nolan said: ‘From January 1, the energy price cap will put an end to customers on default tariffs being overcharged as much as £1billion for their gas and electricity.

‘It will ensure that, whether energy costs rise or fall, suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes.’

However, Alex Neill, from consumer champion Which?, said: ‘While the price cap will ease the financial burden for some households, people shouldn’t be lulled into a false sense of security that it will mean they are getting the best deal. Switching is still the best way to save money on energy bills.

‘The price cap can only be a temporary fix – what is really needed is more competition between suppliers to help drive the innovation that is so desperately required.’

Richard Neudegg, from price comparison website uSwitch. com, said: ‘Ofgem’s suggestion that households on standard variable tariffs will save an average of £76 from January may not be realised.

‘As Ofgem itself suggests, initial savings could be wiped out as early as April when rising wholesale costs may force the cap to increase. So standard tariff energy customers can only rely on three months of savings – averaging about £19 – before the cap potentially goes up.’

And Lawrence Slade, chief executive of industry trade body Energy UK, warned: ‘Wholesale costs have risen by well in excess of 30 per cent in the last year, affecting energy companies large and small, and – if this continues as current forecasts suggest – the cap will have to increase to reflect this.’

He added: ‘We must also look at ways to keep bills down on a lasting basis. Energy efficiency is by far the most effective way to do this over the long term, saving the typical customer hundreds of pounds a year through reducing their energy use. This is why Energy UK has long been calling for a national energy efficiency programme.’

‘Feathering their nest’