Industry voices have reacted to the news that Ofgem has set the final level of the incoming energy price cap.
The industry regulator announced this morning (6 November) that the level will be set at £1,137, which is just £1 higher than the proposed amount.
Rachel Reeves, chair of the Business, Energy and Industrial Strategy (BEIS) select committee said: “The energy price cap is a vital solution to fixing the broken energy market and protect consumers. I welcome Ofgem’s announcement on the level of the price cap.
“However, vulnerable customers must not lose out. The secretary of state needs to set out how the new price cap will ensure that vulnerable customers do not slip through the net and actually find themselves worse off.
“If the government is unable to provide this guarantee, then the BEIS committee will need to revisit this issue and ensure the price cap delivers as intended.”
Several suppliers and commentators have voiced their thoughts on the cap.
Greg Jackson, chief executive of Octopus Energy, welcomed the announcement.
He said: “Efficient companies won’t even break a sweat at the price cap level announced today, but for 11 million ripped-off households, this will help reduce the burden of excessive energy bills.
“The energy industry must use this time to clean up its act ahead of Ofgem’s review of pricing practices, which we hope will see a true end to the loyalty penalty, deceptive tease and squeeze tariffs and predatory pricing.”
Some however have suggested switching energy provider is still the best way to save money.
Jane Lucy, CEO and founder of switching service Labrador, said: “Price caps will never be the way to solve the UK’s energy market as they undeniably reduce competition, promote lethargy and consequently, make consumers mistakenly believe that they are getting the best deal, when this is not the case.”
Alex Neill, Which? managing director of home products and services, warned the cap could lead some into a “false sense of security”.
He said: “Which? research has previously found that the cap won’t cut bills for customers on three in ten dual-fuel deals, so while the price cap will ease the financial burden for some households, people shouldn’t be lulled into a false sense of security that it will mean they are getting the best deal. Switching is still the best way to save money on your energy bills.
“The price cap can only be a temporary fix, what is really needed is more competition between suppliers to help drive the innovation that is so desperately required. In the meantime, Which? will continue to monitor the energy market closely and put pressure on suppliers to improve the service they provide their customers.”
Stephen Murray, energy expert at MoneySuperMarket, said those who do not switch could be in for a “nasty surprise” next spring when the level is likely to increase.
He said: “Ofgem is attempting to protect consumers by launching this cap with a £76 savings message, but it’s simply not sustainable. The cap will be reviewed again in February, when market forces look likely to dictate it will rise significantly.
“That means we could be looking at three months’ gain and then 12-18 months of long term pain for people who do nothing and let the regulator control their bills.
“The cap level might look appealing on paper, but there are still 89 more competitively priced tariffs on the market today. Customers who switch to a competitive fixed rate tariff can save £200 or more on their annual bills right now as we head into winter.
“If you do nothing, you could be in for a nasty surprise come spring next year.”
Amanda Cumine, of auto-switching service Weflip, said: “While a price cap has good intentions and could save some of the most vulnerable households who are already on the most expensive energy deals a small amount of money, the fact is that the cap limit of £1,137 is simply not a good deal.
“Our concern is that the price cap will act as an inertia comfort blanket for millions of households by setting an ‘acceptable’ price for energy that is still considerably more than what people should be paying. And a lack of switching is one of the biggest issues in domestic energy today, costing UK households a collective £931 million each year.
Individually, according to the latest Ofgem report, households could save as much as £285 by switching, making it crucial that a cap is not seen as a substitute for actual engagement.”
Energy Ombudsman Matthew Vickers was keen to point out that while price matters, so does good customer service.
He said: “It’s important that energy pricing is fair and transparent for consumers. It’s also important that we have a vibrant and sustainable energy sector which can invest in the technology and innovation that we’ll all need for the future.
“Price matters but so does good service on something as central to our lives as energy. As the Energy Ombudsman we know that clear communication, ease of service and fair treatment are as high on the agenda for consumers as price.”
Gillian Guy, chief executive of Citizens Advice, said: “This price cap will finally offer some much-needed protection for loyal households on default tariffs, who have been exploited for too long.
“While the cap will mean that people pay a fairer price, it will not be the best deal on the market. By shopping around and changing tariff or supplier, people are likely to be able to make much greater savings on their energy bills.
“Households may also be able to reduce their bills and make long-term savings by improving the energy efficiency of their homes. Simple steps, such as better insulation or heating controls, are a good place to start.”
Also responding to the announcement was Energy UK’s chief executive Lawrence Slade, who said the cap would present a “significant challenge” for many of the 70+ suppliers in the retail market who are already facing steeply rising costs.
Slade added: “It is crucial that the cap doesn’t halt this growth of competition and choice and still enables energy companies to both invest and attract investment.
“Wholesale costs have risen by well in excess of 30 per cent in the last year affecting energy companies large and small and, if this continues as current forecasts suggest, the cap will have to increase to reflect this.
“So we must continue to encourage more customers to engage and benefit from the large savings that can be made by switching which far exceed those delivered by the cap – and customers may benefit from fixed price deals which can protect against potential future rises.”
On July 19 the Domestic Gas and Electricity (Tariff Cap) Act became law giving Ofgem the powers to put the price cap in place.
It is designed to be a temporary measure until 2023 at the latest. Ofgem says this will allow it to put further reforms in place to make the energy market “more competitive and work better for all consumers”.
The first update of the level of the price cap will be announced in February 2019 and come into effect in April 2019. It will then be updated every six months.