The introduction of the energy price cap could be delayed following a knife edge reverse for the government in the House of Lords, a minister has warned.
The upper house of parliament backed, by 193 votes to 192, a Labour amendment to the government’s capping legislation by introducing a permanent relative cap on prices.
Moving the amendment, Labour peer Baroness Kennedy said there is growing support for a relative cap, which is designed to end the so called “tease and squeeze” that critics accuse suppliers of using to lure in customers with cut price tariffs.
She said the government’s reliance on switching as the long-term solution for reducing energy bills would lead to higher administration costs for suppliers and provide them with few incentives to reward loyal customers.
But junior energy minister Lord Henley warned the amendment risked disrupting the swift passage of the legislation, which is designed to introduce a temporary cap on suppliers’ standard variable tariffs (SVTs) by this winter.
To safeguard vulnerable customers who might be exposed to expensive SVTs when the temporary cap ends, the minister said Ofgem had pledged to three steps.
He said the regulator would assess whether ongoing protection will be needed for vulnerable consumers beyond the end of the price cap and that it would consider implementing a cap for selected consumers.
Lord Henley said that ahead of the price cap’s end, Ofgem has also committed to producing a report outlining what additional protection might be needed, who requires it and the form it should take.
He said: “It is better for Ofgem to consider what measures may be needed once the price cap is lifted rather than prejudge the situation now and tie Ofgem’s hands in a way that might damage consumers or be ineffective.”
He said the relative cap risked increasing the least expensive tariffs rather than reducing the most expensive standard variable rates.
Responding to the government’s defeat, Labour’s energy spokesperson in the Lords, John Grantchester, said: “The government has missed an open goal to outlaw exploitative ‘tease and squeeze’ practices within the retail energy market.
“Suppliers have long operated a two-tier market, to the benefit of internet savvy switchers with millions more loyal customers punished through higher tariffs. And it is often the elderly or those on low incomes who are hit worst.
“With our winning amendment now heading to the Commons, I hope the government will see sense and make changes to the bill that benefit all consumers while also maintaining competition.”
The amendment will now be considered by the House of Commons before it becomes legislation.
Responding to the Labour amendment, Octopus chief executive and relative price cap champion, Greg Jackson, said: “The tease and squeeze practices we see in energy, and other digital consumer markets, are highly predatory and must be stopped.
“We need to wake up and push back against the idea that companies should be allowed, and even encouraged, to punish customers who aren’t constantly on their guard against being ripped off.”