House­holds face long wait for en­ergy cap

Ofgem chief warns plans for a legally bind­ing price cap could take months to come into force of­fi­cially

The Daily Telegraph - Business - - Business - By Jil­lian Am­brose

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 en­ergy reg­u­la­tor Ofgem vowed yes­ter­day to ex­tend its price cap for cus­tomers us­ing pre-pay­ment me­ters to in­clude 1m house­holds con­sid­ered so­cially vul­ner­a­ble.

The move comes ahead of the Gov­ern­ment’s bid to­day to com­pel Ofgem to take tougher ac­tion by leg­is­lat­ing stronger pow­ers for a cap on bills for 15m house­holds. Theresa May, the Prime Min­is­ter, 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.”

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” for the cap on stan­dard vari­able tar­iffs would in­clude a 50 to 60-day statu­tory con­sul­ta­tion with in­dus­try and five months to en­act.

He de­clined to com­ment on how long the par­lia­men­tary process of turn­ing the Bill to law might take.

In the mean­time, Bri­tain’s largest en­ergy com­pa­nies will come un­der pres­sure to use the com­ing months to move cus­tomers away from stan­dard vari­able tar­iffs, which are more ex­pen­sive than fixed-rate deals. How­ever, Ryan Thom­son, from Baringa Part­ners, said there were 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 4m 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 on to 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 an end to so-called “rip-off tar­iffs”.

Greg Clark, the Busi­ness Sec­re­tary, 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.

Around 70pc of homes pay more than they need to by re­main­ing on an SVT deal due to his­toric low lev­els of con­sumer en­gage­ment in the en­ergy mar­ket.

Lawrence Slade, the boss of trade group En­ergy UK, said it was “right we en­sure pro­tec­tion for the most vul­ner­a­ble”. But he also warned that this should not “risk halt­ing the growth of com­pe­ti­tion and en­gage­ment in the mar­ket, which is ul­ti­mately ben­e­fit­ing all con­sumers”.

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