Ministers will unveil draft legislation on Thursday to tackle UK households’ high energy costs by placing a cap on electricity and gas bills, but regulators have indicated that it will not be in force for this winter.
Theresa May, the prime minister, pledged in her speech at the Conservative party conference last week to publish a draft bill to end “rip-off energy prices once and for all” — a statement that sent power companies’ share prices tumbling.
About 15m of Britain’s 27m households are on standard variable tariffs, which are currently more than £300 each year more expensive on average than the most cost-effective deals.
The government’s new legislation will seek to place a cap on those tariffs, but Ofgem, the energy watchdog, suggested that it would not come into effect this winter as ministers had hoped.
Dermot Nolan, chief executive of Ofgem, estimated that it would take about five months after a bill received royal assent for a price cap on standard variable tariffs to be implemented, because the watchdog had a statutory duty to consult power companies on the plans.
Extra paid on average each year by a customer on a standard variable tariff rather than the most cost-effective deal
John Penrose, the backbench Conservative MP who has led a campaign for an extensive energy price cap, expressed concern that it could take up to two years for the cap to take effect.
“We need faster routes to deliver our pledge,” he added, referring to how Mrs May first promised action to tackle high energy bills before the June general election.
Ofgem estimates 15m households are on standard variable tariffs. However, the government said a total of 18m energy customer accounts could potentially benefit from the price cap, reflecting how some households have different suppliers for electricity and gas.
Mrs May said millions of customers had been paying “hundreds of pounds too much” for their energy and that the price cap would be a vital step towards fixing “the broken energy market”.
Households on standard variable tariffs from among Britain’s 27m
The government and Ofgem have in recent months engaged in a spat over who is best placed to introduce a price cap.
Greg Clark, the business secretary, said last month that Ofgem had the powers to eradicate £1.4bn of excessive annual charges by power companies.
But Ofgem has insisted it would be more effective for the government to introduce legislation that would prevent the companies from appealing against a price cap.
Ofgem said on Wednesday that it would work with the government so that all households on standard variable tariffs would “receive price protection as soon as possible if legislation is in place”.
Meanwhile, the watchdog announced that a further 1m households on low incomes would be protected from high energy bills.
Customers who already qualify for a “warm home discount”, a scheme that entitles each of them to £140 off their bills over the winter, will save on average an additional £120 a year under the changes outlined by Ofgem.
By February, these 1m customers will be subject to the same price protection as an estimated 4m households that use pre-payment meters and benefit from measures to limit their bills that were introduced by Ofgem in April.
Mr Clark said the watchdog’s latest measures did not go “far enough and fast enough”.