More than four million households will see their energy bills rise by around £57 a year after Ofgem announced it was hiking the safeguard tariff – a price cap aimed at protecting vulnerable and pre-payment customers.
The tariff was extended to almost one million vulnerable customers on 2 February, taking the total number protected to five million. But those already on the tariff will now pay more.
This is because the regulator has now said it will increase the level of its safeguard tariff from 1 April, meaning the average dual fuel bill will rise from £1,031 to £1,089 a year. It said this is due to “higher wholesale and regulatory gas and electricity costs”.
Ofgem said in a statement that it adjusts the level of the cap twice a year based on a pre-defined methodology set by the Competition and Markets Authority (CMA), to reflect the estimated underlying costs of supplying energy.
It added vulnerable customer’s bills – which used to be among the highest in the market – would still be around £35 lower than the current standard variable tariff (SVT) paid by direct debit customers.
Dermot Nolan, chief executive of Ofgem, said in a media call: “The increase in the safeguard tariff is mainly due to higher wholesale energy costs and policy costs to support low carbon forms of electricity generation. Customers are still better off under the safeguard tariff, which stops suppliers from charging customers too much.”
In response to the extension of the safeguard energy tariff, Alex Neill, managing director of Home Products and Services for Which? said: “While it’s right that help is extended to vulnerable customers, an average saving of just £66 on people’s energy bills from April makes the safeguard tariff far from the cheapest deal on the market.
“Anyone overpaying on a poor-value tariff should look to switch away to a better deal immediately, as they may save up to £305 a year.”
Lawrence Slade, chief executive of Energy UK, said: “That the cap will rise from April does show how energy costs, which are out of any suppliers direct control, are increasing and underlines why it is critical any broader cap must be cost-reflective and protect competition which is delivering benefits for consumers.”
Meanwhile Adam Scorer, chief executive of fuel poverty charity, National Energy Action (NEA), welcomed the move to protect vulnerable customers but said the cap should be extended to a greater number of low-income families: “The UK government, Ofgem and suppliers know who these additional consumers are. There needs to be real urgency to break through any remaining impasses of safely sharing this data.”
Nolan said the extension of the tariff will mean “a fairer, smarter and more competitive market for all consumers”.