Government extends energy price cap until end of 2021

October 19, 2020 9:30:00 PM

Government extends energy price cap until end of 2021

Around 11 million households will continue to make savings on their gas and electricity bills after the Government extended its energy price cap until the end of next year.

The Department for Business, Energy and Industrial Strategy (BEIS) said the cap has saved customers around £1 billion a year since it was introduced in January 2019, equivalent to around £75-100 a year for typical households on default energy tariffs.

An additional four million households with prepayment meters on default tariffs will also come under the protection of the cap from January.

Business and Energy Secretary Alok Sharma said: “The energy price cap has been vital in ensuring customers do not pay too much on their bills, which is why we are keeping it in place for at least another year.

“Switching energy supplier to find the best value deals is still the best way to save on bills, but this Government is determined to make sure all customers are treated fairly and get the protection they deserve.”

The energy price cap shields those least likely to shop around for the best deals, including the elderly and most vulnerable, from being charged excessive prices.

BEIS said a total of 2.8 million electricity and 2.1 million gas customers switched supplier in the first six months of 2020, but that more than half of customers are still on standard variable (SVT) or default tariffs, where, in the absence of the cap, “they would likely still be paying excessive charges for energy use”.

The announcement on Monday comes following a recommendation in August by the independent energy regulator Ofgem to extend the cap following a review into the market.

Ofgem announced the price cap level for October 2020 to March 2021 would be £1,042 for typical users paying by direct debit.

Ofgem’s chief executive Jonathan Brearley said: “Although those protected by the cap are paying a fair price, they can also reduce their energy bills further by shopping around for a better deal.

“Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy system.”

Peter Earl, head of energy at price comparison website comparethemarket.com, said an unintended consequence of the price cap is households being “lulled into a false sense of security by wrongly believing that the cap is a ‘good’ price to pay for energy”.

He said fewer people have switched suppliers compared to last year – a downward trajectory that correlates with the introduction of the energy price cap.

“As a result, millions of households on standard variable tariffs are potentially paying hundreds of pounds more than they could be for an essential utility,” he said.

“There is a real risk that the British public interpret the Government’s extension to the price cap as an endorsement that the cap is an affordable price to pay for energy, when in reality it should be considered the absolute ceiling that people pay.”

Mr Earl said there are currently 191 energy tariffs on the market cheaper than the £1,042 price cap.

“As the temperature drops and people turn the heating up a notch or two, switching to a competitively priced one or two-year fixed-rate deal is an effective way for households to lock in a cheaper energy deal,” he added.

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