Sam Brodbeck Personal Account

Good riddance to the tin-pot energy suppliers the crisis will kill off

It didn’t even take three years. The energy price cap came into force in January 2019 and now suppliers are demanding the Government scrap it at the very moment it will prove its worth.

Yes, the crisis – largely driven by the wholesale cost of natural gas which suppliers rely upon – is putting providers under pressure. Some providers have gone to the wall and others will follow suit over the coming weeks. But dismantling the cap to prop up failing firms should not even fleetingly be considered by the Government.

For years it has been ludicrously easy to set up shop as an energy company ( even from the comfort of your own bedroom). It is still possible to buy offthe-shelf “supplier in a box” packages that include certification from Ofgem, the energy watchdog. This permissive environment was born out of the oligopoly that emerged in the late 2000s when the number of suppliers plummeted, leaving the Big Six incumbents in total control. In some poorly served areas, consumers only had a choice of two or three providers, leaving them vulnerable to sudden price hikes.

The boom in suppliers and their desperation to attract customers on unsustainable deals was taken up by savvy homeowners who, inspired by the likes of Martin Lewis, got into the habit of regularly switching providers to secure the best rates.

The 10 million or so households who didn’t switch languished on providers’ standard or default tariffs, effectively subsidising the teaser rates. Many of these people lost out not because they were too wealthy to care, but simply because they didn’t realise the way the market worked. Often the problem was a lack of internet access.

The poorly named “price cap”, which sets the maximum rate you can be charged, but not the total bill, is designed to help the loyal customers who never switch and make up the bulk of the sector’s profits.

We are now in the bizarre position where the cheapest rates will be paid by those on default deals (and so protected by the cap) and not the usually more competitive fixed-term rates. Some suppliers are effectively hiding their best rates and pushing customers towards more expensive deals.

But the cap doesn’t protect consumers indefinitely. On October 1, the cap will limit an average dual- fuel customer to paying £1,277 a year, up £139. This modest rise represents the wholesale cost of energy in the six months to August, so doesn’t take into account the recent staggering rises.

We must hope gas prices plunge, the winter is mild and the wind turbines start turning again, or the next time the cap is reset, on April 1 2022, it will leap seriously high.

The Government and Ofgem must act, from drastically reducing Britain’s reliance on natural gas for electricity generation, to tightening the rules so that energy firms can’t be set up recklessly. But the price cap must stay.

We’ve just recorded the fastest monthly rise in the cost of living on record, furlough is ending and the temporary increase in Universal Credit is not being extended. Now is not the time to dismantle one of the few protections consumers have left.

Dismantling the price cap to prop up failing firms should not even be fleetingly considered