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Energy price cap – will you pay less for energy?

14 million households could see gas and electricity bills affected

Energy price cap – will you pay less for energy?

Two thirds of British households will have their energy bills capped, saving them hundreds of pounds a year, the government has announced this morning.

The price cap will apply to the 14 million people living in England, Scotland and Wales who are currently on energy firms’ standard tariffs or other default tariffs. These can cost hundreds of pounds more, per year, than the cheapest tariffs available. A further four million people paying by prepayment meter already have their energy bills capped.

The proposed cap will set a maximum amount that suppliers can charge customers for gas and electricity. It’s unlikely to be in place this winter and will last until 2020.

The draft Domestic Gas and Electricity (Tariff Cap) Bill, published today, sets out more detail on measures to limit the cost of standard tariffs. It requires energy regulator Ofgem to decide the specifics of the cap and put it in place as soon as possible. Business Secretary Greg Clark told Parliament that the ‘proposal is for an absolute cap’.

We are scrutinising the Bill and will report back on our findings. Keep reading to find out what the cap will mean for you, plus we reveal how much more the Big Six energy firms are charging their customers who are on standard tariffs.

The price cap will take time to come into force. Regardless of whether it affects you, you can still save money on energy by switching. Compare energy prices and find a cheaper deal using Which? Switch.

What will the energy price cap mean for my gas and electricity bills?

If you’re on your energy supplier’s standard tariff, a cap would cut your bills. Update: the price cap will apply to standard Economy 7 and Economy 10 tariffs too, the government confirmed to us.

But this doesn’t mean you can sit back believing you’re on a good-value energy tariff. You’d save far more by switching to a different tariff or energy supplier.

The price cap is expected to be in place until the end of 2020, when the smart meter roll-out should be complete. But it could be extended until 2023 if Ofgem thinks it necessary, the government said.

However, a short-term price cap risks unintended consequences – such as longer-term price increases, stifling innovation from energy firms or removing incentives for them to improve service. We’ve set out five tests that any price cap should meet to ensure it’s a good outcome for bill payers.

At the moment, the difference between the standard variable tariff and cheapest deal from the biggest energy suppliers is £159 per year, on average. So that’s how much you’re overpaying by being on a standard variable tariff.

The graph below shows the difference between the biggest energy suppliers’ priciest standard variable deals and their cheapest fixed deals.

British Gas has the smallest difference (£13) between its standard tariff and cheapest deal. EDF Energy has a £269 annual price difference at the moment. So if you’re an EDF customer on its standard variable tariff, your energy company is charging you hundreds of pounds more than some of its other customers.

But with any of these energy firms, you would save more money by switching to the cheapest deal on the market with a small supplier.

What Which? thinks of the draft Domestic Gas and Electricity (Tariff Cap) Bill

Which? managing director of home products and services, Alex Neill, said:  ‘For millions of people paying over the odds on a standard variable tariff, today’s draft Bill will sound like a positive move. The Government must guard against any unintended consequences, so it’s encouraging that this intervention is designed to be temporary, and that Ofgem has been charged with ensuring that competition and incentives for consumers to switch are maintained.

‘This proposed price cap will take some time to come into effect, so customers currently sitting on standard variable tariffs should switch now and start saving immediately.’

Two energy price caps: the differences

Today’s news follows energy regulator Ofgem’s announcement yesterday that it would extend the current price cap for those with prepayment energy meters to include an extra one million households.

If you receive the Warm Home Discount, this price cap extension applies to you and should be in place by February 2018, Ofgem expects.

The regulator also said it plans to extend energy bill ‘price protection’ to a further two million households on standard variable tariffs, and will work closely with the government to do so.

Ofgem also announced that it will introduce new rules to allow energy firms to move customers on fixed deals to another fixed deal when their tariff expires, rather than putting them automatically onto the standard tariff, as at present.

It has also proposed automatic compensation for customers whose switch between energy providers goes wrong.

The prepayment energy price cap

Since April 2017, prepayment meter charges have been capped. At the moment this means the maximum cost per year, for a medium user, is less than the average paid by a medium user on a standard tariff with one of the Big Six energy firms paying by direct debit.

If you have a prepayment meter, or know someone who has, you can still save money by switching supplier. On 1 October 2017, we analysed 43 energy deals that prepayment meters could choose from. 19 of these deals were over £10 cheaper (for a medium user) than the amount permitted by the cap.

For more information about prepayment meters, including how to get rid of one, go to Is a prepayment meter right for me?

How to cut your energy bill now

If you’re currently on a standard tariff, you can switch at any time – there are no exit fees to stop you. Regardless of whether you’re affected by the price cap, you’ll still be able to save money by switching energy firm.

If you’re on a fixed deal, keep in mind when it ends and plan to switch in advance so that you don’t automatically roll-over onto your supplier’s standard tariff and risk a bill increase.

If you’re on a fixed deal, check your deal carefully. Some fixed tariffs don’t charge exit fees, so you can change deal at any time.

For all other fixed tariff deals, your energy supplier cannot charge you an exit fee if you switch in the last 49 days of your deal.

Our research

Our prepayment pricing data is from Energylinx, based on a medium user (Ofgem average use of 3,100kWh electricity and 12,500kWh gas per year, as per when the price caps were set), paying by prepayment meter. Data is correct for 1 April and 1 October 2017.

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