When Ofgem’s long-anticipated default retail tariff was eventually announced, the news was helped by the fact that the headline figure was £1,136, largely in line with market expectations.
It seems, then, that the acid test will be what happens next.
The regulator’s proposal that from December suppliers will no longer be able to charge a typical dual-fuel standard variable tariff customer on a direct debit any more than this ceiling figure each year (a plan expected to benefit 11 million households by an average £75), marks the culmination of a long battle between government and industry, despite fierce opposition from retailers.
Scheduled to be rubber-stamped in November and subject to ongoing review, many will recall the concept originally being kicked off in 2013 by then Labour leader Ed Miliband. Certainly, by the time Theresa May’s pre-election pledge to get tough on “rip-off” energy suppliers finally took shape, the sector had long become resigned to the inevitable.
But only time will tell if this deeply divisive market intervention was a wise development – let alone a successful one.
One big six supplier’s shares rallied in the aftermath of the announcement, having eased worries about a possible dividend cut. However, vociferous warnings continue unabated from industry voices who call for “competition, not caps”, and who caution against misplaced complacency about the effect the cap will have on switching levels. Those same voices have also predicted that even more smaller players will now go to the wall.
Earlier this year, when Business, Energy and Industrial Strategy (BEIS) committee chair Rachel Reeves called for the price cap, she reinforced her message by pointedly wagging her finger at energy bosses, saying they had only themselves to blame.
But such condemnation can work both ways.
Re-regulating a market, long characterised as broken and with increasingly squeezed margins, will turn out to be either a very brave or a very stupid political move.