Ofgem, the energy regulator, has announced it will extend a price cap on vulnerable customers to reach a further million households in the UK, but that it will push the cap higher.
The safeguard tariff Ofgem imposed last year, will rise by £58 from £1,031 to £1,089. The tariff caps are in effect for pensioners and vulnerable customers who use prepayment meters. The cap ,which comes into force on April 1, means household savings will from £115 to £66.
However, the amount of households the cap will be reach has been extended to a further 1 million households meaning the total number protected will now stretch to 5million.
Special protections are in place for customers who are more likely to struggle with bills and less likely to switch to better deals.
“It is right that there is support for the most vulnerable who may be less able to benefit from what is a highly competitive market,” said Lawrence Slade, the chief executive of Energy UK
The safeguard tariff was concocted to protect consumers from unfair energy hikes which suppliers had blamed on increasing costs of meeting government policy schemes push towards more carbon efficient energy and rising wholesale prices. Ofgem, though, has now said that it is for these reasons that the hike on household bills has been enforced.
Richard Neudegg, the head of regulation at Uswitch.com, said: “This is an acknowledgment by the regulator that there has been a rise in wholesale and policy costs for the suppliers, and there is always a risk that prices could move upwards for other customers. Our hope is that providers don’t raise prices across the board. We already know that standard variable tariffs are too high but our message from customers is that they will have to switch to get the best deal”.
Ofgem’s decision to rise prices has reignited controversy on government plans to include a price cap on all 12million households on standard variable tariffs.
Under the plans, Ofgem will allow the safeguard tariff to cover supply costs but allow an average profit margin of just 1.25pc, less than a third of the regulator’s latest annual estimates, which averaged 4.5pc in 2016.
Critics say this market intervention will stifle competition and lead to a lack of investment and put the smaller firms out of business, having seen the industry diverse from six suppliers to 60 with record levels of change.
Though the Energy Minister, Claire Perry, said that she thought it was a positive step that a million extra customers were being protected from ‘unfair price rises’.
Ms Perry said: “Energy tariffs are still too high, with customers of the Big Six energy suppliers still overpaying by up to a staggering £1.4billion a year. This is totally unacceptable and why the government will continue to go further, by bringing in new laws in the forthcoming energy tariff price cap bill to put an end to rip off tariffs.
