The Government has announced plans to cap standard variable rate energy tariffs, which could slash energy bills by hundreds of pounds for some of the most loyal and vulnerable customers.
In a statement, the Government said that it was publishing draft legislation for the cap later today, which would require Ofgem, the industry regulator, to consult and impose the cap "as soon as practicable after the legislation is passed".
The cap will apply to households in England, Wales and Scotland on standard variable deals and similar default tariffs, which can cost hundreds of pounds more than the cheapest deals available. It will be a temporary measure that will remain in place until the end of 2020, but it could be extended to 2023 if deemed necessary.
The announcement follows yesterday's statement from Ofgem, which said that it was extending its prepayment safeguard tariff to protect the most vulnerable customers and save around 1 million households an average of £120 a year.
It also said that it would wait for legislation from the Government before further, more wide-ranging price caps would be put in place, but now that said legislation has been announced, it's hoped that it won't take too long for the cap to be implemented.
The Prime Minister has previously said that the industry "has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much," with Business and Energy Secretary Greg Clark adding that customers of the big six suppliers were "overpaying to the tune of £1.4bn a year". It's time to get some of that back!
The cap has the power to help some 18 million people who are on variable or default tariffs and are paying too much as a result, with many of those customers having never switched energy supplier. As it stands, loyalty doesn't pay when it comes to energy tariffs, but it's hoped that the cap could go some way to redressing the balance and ensure those loyal customers won't pay quite so much.
This isn't the only change that could be on the cards, either. Ofgem also announced plans to ensure suppliers "step up efforts to get more of their customers on default tariffs onto better value deals," and one of the ways they're doing this is to change the rules around renewals.
As it stands, when you come to the end of a fixed rate deal you're typically rolled straight over onto a standard variable tariff, unless you compare energy prices and switch beforehand. Now, suppliers will be able to "roll customers coming to the end of their contracts onto another fixed deal instead of a poor value standard variable tariff".
The regulator will be keeping a close eye on things to ensure these new default deals remain good value, and it's also proposing that customers receive automatic compensation should their switch go wrong, adding further confidence to the switching process – it's all sounding pretty good for energy customers at the moment!
"Ofgem shares the Government's concern that the energy market is not working for all consumers and is determined to reduce the detriment suffered by those overpaying for their energy, particularly those who are vulnerable," said Dermot Nolan, chief executive of Ofgem.
"The Government's proposed bill to provide price protection to those who remain on poor value default deals, such as the standard variable tariff, will give these households peace of mind about the price they pay for their energy. In the meantime, we expect suppliers to do more to get customers on poor value default tariffs onto better deals."
While the energy price cap and other initiatives are of course welcome, you don't have to wait for the rules to be implemented to get a better energy deal. Why not bite the bullet and switch to a cheaper tariff right now? You could save hundreds of pounds by switching, particularly if you're on a standard rate deal, so don't pay too much – compare energy tariffs and see how much you could save.