Will the energy price cap push up prices for fixed tariffs?
Government proposals will see Standard Variable Tarriffs and default bills capped until 2020. But will it drive-up prices instead?
THE energy bills of millions of households are set to be capped, under plans announced by the Government today.
Under the plans bills for customers on expensive Standard Variable Tariffs (SVTs) and other default tariffs will be capped until at least 2020- but could this push up prices for those on fixed tariffs and how will it work. We take a look.
Why are the Government taking action?
Because like many in the country, they are fed-up with sky-high, rip-off energy prices.
Around 18million households are SVTs deals according to the government, which can cost up to £300 a year more than the cheapest deals.
Citizens Advice found bills for customers of the Big Six energy firms rose by £89 in the last year - three times the rate of inflation.
The new bill gives energy regulator Ofgem the power to impose a cap on SVTs and other default tariffs in England, Wales and Scotland.
The Government has stressed that this is a temporary measure which will run until the end of 2020 but it will be reviewed and could last until 2023.
Will I get cheaper energy bills?
While a cap sounds good for the millions on SVTs, industry experts have voiced concerns over the proposals.
Steve Smith, of energy switching firm Flipper, said the move could stifle competition and discourage switching between suppliers - which is the best way to slash your bill.
He told the Sun Online: "While a price cap might have a short-term positive effect for many customers, it will ultimately harm all by reducing competition.
"It will have a chilling effect on competition more generally.
"If there's a government imposed cap, many more customers will permanently disengage and choose not to shop around as they'll think the price capped tariff protects them."
MSE's Martin Lewis said: "A price cap done wrong can do more harm than good.
"Some Tory MPs had been lobbying for a ‘relative’ price cap – which means a firm's most expensive price can only be a set percentage more than the cheapest.
";That’s self-defeating – it means they’ll just withdraw cheap deals – so I’m happy to see that if we are going to have a cap it is to be an absolute cap which doesn’t create that problem.
“Yet ultimately a price cap is a halfway house. Politicians have to make their minds up. Do they see competition and switching as the solution, or do they want to regulate prices?"
But Will Hudson of switching organisation the Big Deal welcomed the move.
He said: "It is hugely welcome. Big Six companies have been overcharging their most loyal customers for years."
How will the cap work?
The draft bill will now be debated by Parliament and requires Ofgem to introduce the price cap "as soon as is practicable" after it is made law.
It remains to be seen if customers will have to apply to be eligible or if it will be applied to their bills automatically.
Yesterday, announcing its own price cap, Ofgem said customers would have its cap applied automatically.
Energy expert at MoneySuperMarket, Stephen Murray, said consumers need to take action now if they want cheaper bills.
He said: "Realistically, it could be Spring 2019 before customers on standard variable tariffs start to see their bills come down.
"The choice for customers is simple: wait 18 months, incur the likelihood of more price increases and then potentially save £100, or switch hassle-free today to a competitive fixed rate tariff and save £250, or possibly more.
"There's no need to wait for political intervention - you can take matters into your own hands now and secure cheaper energy bills going into the cold winter months."
How to save on you energy bills
THE price cap proposals are a temporary measure which will run until 2023 at the latest. Here's how you can save money on your bills NOW.
1. Shop around - If you're on an SVT deal you are throwing Away up to £300 a year. Use a comparion site like MoneySuperMarket.com or EnergyHelpline.com to see what best deals are available to you.
The cheapest deals are usually found online and are fixed deals - meaning you'll pay a fixed amount usually for 12 months.
2. Switch - When you've found one, all you have to do is contact the new supplier.
It helps to have the following information - which you can find on your bill - to hand to give the new supplier.
- Your postcode
- Name of your existing supplier
- Name of your existing deal and how much you pay
- An up-to-date meter reading
It will then notify your current supplier and begin the switch.
It should take no longer than three weeks to complete the switch and your supply won't be interrupted in that time.
3. Be energy efficent - There are lots of ways you can improve your energy efficency - and cut down on your bills. There are grants available to help you pay for things like improving your boiler and improving your house insulation.
The Energy Savings Trust says you can save £55 a year just by turning your thermostat down by 1 degrees celcius.
Make sure your radiators aren't blocked by furniture to help warm your home quicker.
Using energy saving lightbulbs last 10 times longer than ususal bulbs.
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