This morning (7 August) Ofgem announced that the price cap on default tariffs will be lowered by £75 to £1,179 on 1 October.
Meanwhile, the cap for pre-payment meter (PPM) customers will decrease by £25 to £1,217.
A number of industry voices, including Eon’s chief executive Michael Lewis, have reacted to the news.
Here is a roundup of what the industry has been saying in response.
Michael Lewis, chief executive of Eon UK: “As we predicted, the overall downward trend in the wholesale markets since the start of February means customers on standard variable tariffs will benefit from a fairly significant reduction in bills from 1 October onwards. We’ll be writing to our customers in the coming weeks to make them aware of this change and how it benefits them.
“The price cap, set out as a fair price for energy, still leaves many people paying more than they should – simply because their homes are still using more energy than they should. Across the UK, up to 17 million homes still have one of the lower energy performance ratings.
“Whether you’re driven to cut energy bills or to help tackle climate change, we can all do things such as improve insulation, replace old heating systems with modern, more efficient versions, or install solar panels to generate your own power at home.
“We have the opportunity with a new government to focus on bringing the standard of housing up to appropriate levels. We already know every pound spent on energy efficiency pays back more than three times – with the additional benefits that comfortable homes bring in terms of helping people to lead healthier lives and even perform better in schools.
“We’re looking forward to that future energy world and it’s why we’ve taken the decision to provide all of our customers’ homes with a source of electricity backed entirely by 100 per cent renewable sources.
“That’s the first step for many customers on a path which includes moving to more efficient and smarter homes that have better insulation, smart heating controls, solar and battery technology, heat pumps and electric car chargers to help our customers put themselves in control of their energy needs.”
Audrey Gallacher, director of policy at Energy UK: “The vast majority of a typical energy bill is made up of costs that are outside of an energy company’s direct control, with wholesale costs accounting for the biggest proportion. Today’s announcement reflects that there’s been a fall in wholesale costs since Ofgem last set the cap level.
“It remains a challenging environment for suppliers of all sizes, but a competitive market means that customers can benefit from increased choice and good deals – either by contacting their own supplier or joining the near half a million customers that switch provider every month.
“Also, to deliver net-zero emissions by 2050, we must increase the energy efficiency of our homes which will save customers potentially hundreds of pounds by using less energy.”
Peter Smith, director of policy and research at fuel poverty charity NEA: “After a significant price rise in April, it is encouraging to see that Ofgem are reducing the default cap when costs drop.
“We are, however, disappointed that the prepayment cap will now be higher than the default cap for the first time as they will now pay more smart metering costs despite the fact many PPM customers are still to benefit from the smart meter rollout. This will mean that some of the most vulnerable customers will be paying more for their energy than they would have done just before the winter hits.
“We continue to highlight key steps that Ofgem can currently take to protect low-income customers. We are also urging the UK government to ensure the Warm Home Discount scheme continues and is expanded. This can be achieved without increasing energy prices for other consumers by adjusting existing tax-funded support.
“We must also address the main causes of fuel poverty and invest central government funding back into energy efficiency.”
Greg Jackson, chief executive at Octopus Energy: “Wholesale energy prices have fallen this year and the drop in the price cap will force energy companies to pass some of the benefits on to customers from October – a standard price cut that Octopus already chose to do in April.
“The energy price cap is already saving 11 million households from being overcharged on standard variable tariffs (SVTs). The market is a healthier place, with more competition and fairer treatment of customers because the gap between an introductory offer and an SVT is no longer as wide.
“Companies with smart, efficient technology are still offering great value energy deals and highly-rated big six lobbyists will be trying to get the government to drop the cap, but it’s proven to be as important in protecting energy customers as the minimum wage is for workers.”
Robert Buckley, head of retail and relationship development at Cornwall Insight: “This announcement by Ofgem to reduce the price cap comes as no surprise, due to the significant reduction in the wholesale market we have seen.
“For example, winter 19 gas was trading in the market at 60 per them (p/th) on 31 January, while the same contract at the end of July was trading 15 per cent lower at 51p/th.”
“Despite the downward movement to the default price cap today, early forecasts for summer 2020 show it increasing once again unless wholesale prices fall sharply over winter. If wholesale prices remain as they were at 31 July 2019, higher policy and network costs will drive the default price cap higher and erase over a third of the decrease that will come into effect in October.”
Matthew Vickers, chief executive at the Energy Ombudsman: “This reduction in the price cap is good news for the 11 million UK households on poor-value default tariffs, but shouldn’t discourage people from shopping around for better deals.
“When switching to a new supplier, we think it’s important that consumers look at the customer service they can expect to receive as well as price.
“Online reviews and tools such as the Citizens Advice star rating league table – which is based partly on Energy Ombudsman complaints data – are excellent resources.
“A good price doesn’t necessarily mean good value. Researching customer service as well as price will enable a consumer to make an informed decision about switching.”
Natalie Hitchins, Which? head of home products and services: “Lowering the price cap will provide some relief to hard-pressed households – but millions of energy customers on default tariffs will still be left paying hundreds of pounds more than they need to each year.
“While the deadline for energy providers to lower their prices is 1 October, we would urge companies to pass on these savings as soon as possible. However, to benefit from the best deals on the market customers should consider switching providers – you could save over £400 a year, and potentially receive better customer service too.”
Steven Day, co-founder of Pure Planet: “It’s important to remember the cap is an annualised amount, so the £75 cut is actually only worth £37.50 over the six months it will be in effect from October – that’s a saving of just £6.25 a month or £1.44 a week on average.
“11 million variable rate tariff customers with the big six can still save hundreds of pounds more, and help mitigate climate change, by switching.
“There are more than 100 tariffs that are cheaper than the £1,179 average level of the new cap, many of which are green, renewable – and much better for the planet.
“Energy is more than a price. Households can choose clean, renewable tariffs for far less than paying more for polluting power and help the planet.”
Stephen Murray, energy expert at MoneySuperMarket: “The cap isn’t even a year old and we’ve already seen three changes in pricing for the 11 million households on expensive standard variable and default tariffs.
“Despite the price cap level dropping by £75, it’s still more than the original level of £1,137 and crucially, there are more than 100 cheaper tariffs available to consumers in the market today.
“That means someone switching today could secure a deal that delivers three times the saving the price cap offers, while protecting themselves from this rollercoaster of price fluctuations every six months. It’s a no-brainer.”
Peter Earl, head of energy at comparethemarket.com: “The news that the energy price cap will fall by £75 has done little to make prices more competitive for those stuck on standard or variable tariffs. The price cap is meant to protect these customers from disproportionate costs but is currently £228 more expensive than the top 20 fixed rate tariffs available on the market.
“Consequently we urge the new minister of state at the Department for Business, Energy and Industrial Strategy, Kwasi Kwarteng, to immediately review the price cap, as it is clear that this policy is not doing the job it was intended to do.
“Energy customers should not see today’s fall in the cap as a blessing but as a wake-up call to check if they are getting a good deal. Consumers should view the price cap as the absolute ceiling of what they should be paying; with 67 per cent of tariffs on the market lower than the price cap, energy customers looking to lower their energy bills could save far more by switching energy providers.”
Will Kostoris, co-founder of home finances app Youtility: “A £75 reduction in energy bills will be welcomed by consumers who are stuck on the most expensive tariff.
“But these people are still being penalised for their loyalty as suppliers continue to take advantage of their customers by charging the highest possible amount.
“Today’s reduction in energy bills reflects the fall in the wholesale costs of energy, rather than reflecting an improvement in what continues to be a dysfunctional market.”
Richard Neudegg, head of regulation at Uswitch.com: “On paper, a price cap reduction seems like good news for household energy bills, but the new level of the cap – which doesn’t kick in until October – is still £333 more expensive than the cheapest deal which people can switch to today.
“Ofgem has been able to make this cut thanks to a significant fall in wholesale energy prices since the start of the year. But for customers who stayed put on standard energy tariffs, the price cap doesn’t pass on cost reductions of the same size or speed as switching does, meaning they’ve been stuck paying higher prices for months when much cheaper deals have been available elsewhere.
“11 million households on credit meters are in line for an average cut of £75 per year. But the four million households with prepayment meters will only see a £25 fall, due to a change in the way their cap is calculated. So those who are often least able to afford their bills are getting less of a cut, and will actually end up paying more per year than households with credit meters.
“This highlights that a blanket cap is not the best way to help those most in need, and that those people would benefit from more targeted protection.
“The only way for consumers to avoid the roller-coaster price changes we’ve seen with the cap is to take power into their own hands and shop around for a cheaper fixed deal. Locking in a cheap deal now means people can be certain that the price they pay will remain steady for the year ahead.”