Consumers on cheapest energy deals ‘will foot £810m bill for Government price cap’

A PRICE cap designed to save energy customers on the most expensive tariffs £1billion a year will be largely funded by higher bills for those on cheaper deals.

Industry regulator Ofgem said the cap on costly standard variable tariffs (STVs) would be set at £1,136 a year – saving 11 million households an average of £75.

The amount falls short of the £100-a-year saving promised by Theresa May.

Ofgem admitted that those who shop around for the lowest fixed-rate deals could be hit with rising bills to cover the cost.

The move would allow the main providers to minimise any losses. Although many new energy companies have been set up in the last two years the market is dominated by British Gas, SSE, E.ON, EDF Energy, Npower and Scottish Power.

Analysts believe the changes, which are not likely to take effect until December 31, have let the ‘Big Six’ off the hook. The share prices of Centrica, parent company of British Gas, and SSE rose sharply as a result.

The price cap is due to be reviewed in April and could rise by more than £100 a year to reflect rising wholesale energy costs, which would wipe out any savings.

Richard Neudegg, of u-Switch, said the cap was almost £300 more expensive than the cheapest deal on the market.

He said: ‘There’s a danger that customers will stay put rather than vote with their feet, damaging competition and guaranteeing that prices stay high for all.

‘Customers moving to a better deal will be the ones hardest hit, with the potential for their bills to rise by up to £810 million.’

Alex Neill of Which? said: ‘Companies must not use the cap as an excuse to delay helping the millions of customers stuck on rip-off standard variable tariffs to move.’

The Government decided to impose a price cap after the Competition and Markets Authority found householders on SVT deals were overpaying by £1.4billion a year.

Lawrence Slade of Energy UK, which represents the power companies, said that the price cap would ‘ pose a significant challenge’ for many suppliers.

Ministers claimed the news was a victory for consumers. Business and Energy Secretary Greg Clark said yesterday: ‘ We have always been clear and determined that the injustice found by the CMA that loyal customers were being exploited must end.

‘Today’s announcement from the independent regulator will mean that households can have confidence that when energy costs fall their bills will too.’

Ofgem chief Dermot Nolan said: ‘All households covered by the cap will be protected from being overcharged.’