The government has published a draft bill detailing a cap on energy tariffs that will mean "fairer prices for millions of loyal customers" – but some energy companies are reluctant to get on board.

Last week Prime Minister Theresa May gave a speech at the Conservative conference outlining plans to force the ‘big six’ energy companies to cap their standard variable tariffs (SVTs).

Following this, Bilgo.com reported on business secretary Greg Clark’s proposals to have the price cap up in place before winter.

In the draft bill, the Department for Business, Energy and Industrial Strategy has revealed plans to limit the cost of SVTs and other default tariffs that energy firms move customers onto at the end of a fixed term deal.

Mrs May said: ”I have been clear that our broken energy market has to change – it has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much.

“The publication of draft legislation is a vital step towards fixing that, and in offering crucial peace of mind for ordinary working families all over the country.”

The government says two-thirds of energy bill-payers are currently on an SVT. Customers on a prepayment meter are already protected by a price cap. The proposed price cap would run until 2020. After this Ofgem would have to advise the government whether it should be extended each year up to 2023.

This week, energy regulator Ofgem released plans to help more than a million customers to save £120 a year by extending its prepayment safeguard tariff.

The energy watchdog is enforcing new rules for providers to allow customers, who are approaching the end of their contracts, move onto a fixed deal instead of a ‘poor value’ SVT.

Dermot Nolan, chief executive of Ofgem, said: “We expect suppliers to co-operate when Ofgem initially introduces a safeguard tariff for around one million vulnerable households this winter.

“The introduction of further price protections will give time for Ofgem’s reforms to work and for smart meters to be rolled out across the country as we move towards a smarter, fairer, more competitive market.”

A price cap done wrong can do more harm than good

Martin Lewis, founder of MoneySavingsExpert.com
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Despite the likelihood that energy price caps will soon become commonplace, not all energy companies support the idea and would prefer to get rid of SVTs rather than cap them.

An SSE spokesperson said: “SSE believes in competition not caps, so if there is to be any intervention it should be simple to administer, time-limited, and maintain the principles of a competitive energy market to best serve customers’ interests.”

Michael Lewis, chief executive of E.ON UK said: “A price cap will not be good for customers. It will reduce engagement, dampen competition and innovation.

“We believe standard variable tariffs have had their day. Tomorrow should be about helping all customers engage with the market with tariffs that work for them. Therefore the question is ‘why cap it when you can scrap it?'”

'Self-defeating'

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While a step in the right direction, consumer experts believe there is more to be done to solve the problem of high energy bills. Martin Lewis, founder of MoneySavingExpert.com, said: "A price cap done wrong can do more harm than good. 

“Some Tory MPs had been lobbying for a ‘relative’ price cap – which means a firm's most expensive price can only be a set percentage more than the cheapest. 

“That’s self-defeating – it means they’ll just withdraw cheap deals – so I’m happy to see that if we are going to have a cap it is to be an absolute cap which doesn’t create that problem.” 

Gillian Guy, chief executive of Citizens Advice, said: “The runaway costs of default energy tariffs need to be tackled, and this draft bill is an important step towards an energy market that works better for consumers.

“A cap on prices isn’t the end of the story when it comes to fixing the broken energy market, which is why it is vital that Ofgem takes into account the need to protect vulnerable consumers, encourage efficiency, and incentivise switching when it sets the cap. This is particularly important given the temporary nature of the measures.”