Ofgem’s new price cap: Will it help or hinder competition?


UK parliamentary ministers are expected to announce new legislation that will force Ofgem to cap energy tariffs until 2020.

The Domestic Gas and Electricity (Tariff Cap) will place an absolute cap on poor value tariffs, in place of the current standard variable or other tariffs.

Approximately 11 million households across England, Scotland and Wales will benefit from the move.

A 2016 review by the UK’s Competition and Markets authority of the region’s residential market showed that UK customers were facing over-charging of up to £1.4 billion by the region’s big six energy suppliers.

The bill is viewed by parliament as a viable means of increasing market competition in the retail sector, meaning better pricing for consumers, and will also assist in the regions rollout of smart meters, which carries a 2020 deadline, and until recently seemed too big an ask.

The move follows a 2018 commitment by the ruling Conservative Party.

Prime Minister Theresa May said: “It’s often older people or those on low incomes who are stuck on rip-off energy tariffs, so today we are introducing legislation to force energy companies to change their ways.

“Our energy price cap will cut bills for millions of families. This is another step we are taking to help people make ends meet as we build a country that works for everyone.”

The region’s energy industry trade association, Energy UK’s chief executive, Lawrence Slade, cautioned against the undermining of competiton, which may lead to price increases as opposed to the decreases sought by the government.

“It’s vital the cap doesn’t halt the growth of competition which is helping customers to find a better deal and save on their energy bills.”

Under the new bill, Ofgem will review the tariff every six months, as well as the latest comparison from the watchdog, which reviewed the default and standard variable tariffs of the top ten energy suppliers, which showed a potential saving of up to £300 per year.