The Government’s energy price cap which promises to cut the cost of bills for 11 million households by up to £100 has become law.
It passed through parliament last week and is set to be introduced in the winter for all those with a standard variable tariff.
But new research today shows that just 20 per cent of consumers think it will make their bills cheaper.
The energy price cap for SVT tariffs has passed through parliament to become law
The Domestic Gas and Electricity Bill, as it is known officially, will put a price cap on the cost of standard variable tariffs.
These tariffs have been widely criticised for giving poor value for money and the Competition and Markets Authority found that those with one were collectively overpaying by an average of £1.4billion a year.
All of the big six energy providers and a number of smaller firms have pushed up the price of standard variable tariffs this year and some such as EDF have made more than one price rise. The average annual bill for one of these tariffs is now £1,196 which is around £300 more expensive than the cheapest tariffs on the market.
The cap will be in place from 2018 until 2020 and the amount of the cap will be reviewed every six months by Ofgem.
Ofgem released some details about the cap last month but it still hasn’t confirmed what the amount will be.
Prime Minister Theresa May said: ‘For far too long older people, hard-working families and those on low incomes have been subject to rip-off energy tariffs. Our energy price cap will protect households from unfair price rises in time for this winter when people can feel the pinch more acutely.
‘We know that the cost of living is still a challenge for some families and today marks an important step in helping people to keep more money in their pockets.’
All of the big six and some smaller providers have pushed up the price of SVTs already this year
Yet despite the promises of cheaper bills, new research suggests that some energy customers do not think the cap will make a difference to their bills.
Just 20 per cent of 2,000 respondents to a survey from comparison website MoneySuperMarket said they thought their bills would be cheaper after the price cap is introduced.
The research also revealed an information gap when it comes to the price cap with 53 per cent of people saying they didn’t know if it would reduce their bills.
The website also highlights the fact that the current price cap for vulnerable customers has already been increased once by Ofgem because of a rise in wholesale energy prices.
The regulator tracks the price of energy in its Supplier Cost Index and includes wholesale costs, network costs and the charges to suppliers associated with government programmes.
Between February and May this year, the price increased by 5.3 per cent largely due to rises in wholesale energy costs. It increased 14.1 per cent in the 12 months before May 2018 and is currently 9.7 per cent higher than at the start of 2015.
Therefore the website suggests that even with the price cap, households will still be better off switching to a fixed-rate tariff – which can be around £300 cheaper than a standard variable tariff.
Between February and May costs rose by 5.3 per cent largely due to rises in wholesale energy
Stephen Murray, energy expert at MoneySupermarket, commented: ‘Customers won’t see any changes until Ofgem sets the level of the cap, which might not be until November or December this year, by which time it’s already getting cold and people are heating their houses.
‘What initial reduction in bills the cap will bring (if any) is anyone’s guess, but it’s becoming very clear that households who have waited for this “help” will still be paying among the highest bills in the UK….and let’s not forget the regulator will re-set the cap every six months so it can go up as well as down!
‘If we look at rises in standard variable tariffs over the last two years and compare that with the continuing increase in wholesale prices, it seems highly unlikely that any reduction in standard variable enforced by the cap will make customers better off than they were back in May 2017, when the government announced its intentions as part of its general election manifesto.’
The Government has also announced a new £6billion home energy efficiency scheme.
This will be focussed on upgrading more than one million low income and vulnerable households in the next three and a half years. It will require energy firms to supply heating and energy efficient measures to these households, although no further details about how this will work have been published.
Energy and clean growth minister, Claire Perry, said: ‘This government is committed to building an energy market that works for all, while delivering clean, affordable energy.
‘This cap coupled with our £6billion energy efficiency scheme will help build a market that puts consumers at its heart and ensures that those most at risk of fuel poverty are protected. Energy suppliers now need to get on board, ditch their old practices and improve their efforts to deliver value, choice and excellent customer service.’
QUICK MONEY SAVER: CAN YOU CUT YOUR BILLS?
Energy firms are constantly battling to pinch customers from each other.
Shrewd consumers can take advantage of this by reviewing deals every year to ensure they are on the cheapest deal. Even moving every other year will save you significant amounts.
If you are one of the millions of people who have NEVER switched (i.e. stuck with your original supplier), then you should save a big chunk of cash. A tenth of switchers saved as much as £537 in 2017, according to energyhelpline.
You only need to be interested in the tariff that is going to be cheapest where you live, so do your own postcode comparison in minutes using the tool above – or here – to find the best price.
Read more about other quick tricks to make sure you are getting the best deal on your household bills here