A price cap on energy bills?

A woman reading her fuel billOn 17 July 2015, the Competition and Markets Authority (CMA) announced that millions of energy customers have been ‘paying too much for their energy bills’.

After a year spent investigating the retail energy market, the CMA found that it’s not working for consumers, so it’s proposing a transitional price cap on standard variable tariffs.

WHY ISN’T IT WORKING?

The CMA found that between 2009 and 2013, households paid about £1.2bn more a year than they would have in a competitive market and the average household spent about £1,200 on energy each year.

Also, about 70 per cent of customers are currently on the ‘default’ standard variable tariff, which tends to be more expensive than fixed price or discounted tariffs available in the marketplace.

This is because many customers do not appreciate that if a fixed term tariff is coming to an end, they need to exercise an active choice to select a new tariff, or else they will be defaulted onto the standard variable tariff.

A transitional price cap on standard variable tariffs would mean that customers failing to switch would default to a ‘safeguard’ tariff, which would have a maximum price set by Ofgem, the energy regulator.

AGE UK’S POSITION

Age UK supports a transitional price cap because it would offer older people a measure of protection against high energy bills until other measures have led to a more competitive market.

There are currently around a million older people living in fuel poverty in England and some of them have run into debt. That debt has to be paid off or an arrangement has to be made to clear it before they can switch energy providers – hence why many of them have been defaulted to a standard variable tariff.

Also, many older people lack access to the internet to shop around for the best deal and are put off by the switching process. Until this process is made easier, it seems fair and reasonable that a transitional ‘safeguard regulated tariff’ is put in place.

HAVE YOUR SAY

Of course, much of the detail of the tariff needs working up, such as who should set the tariff and how it should be calculated, however Age UK strongly believes that this remedy has real merit and will go a long way to protecting vulnerable customers from falling even deeper into fuel poverty.

Let the CMA know your views. The deadline to respond is Wednesday 5 August 2015.

If you would like to read more about the CMA’s proposals, read pages 32-35 of Energy market investigation: Notice of possible remedies

2 responses to “A price cap on energy bills?

  1. Reblogged this on Hart Residents Community Website and commented:
    Well after I had been chatting with my mother-in-law about fuel prices they popped into my consciousness and I share it now for her and for you….

  2. ageukpublicaffairs

    Thanks very much Roger, we appreciate it!

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