UK energy watchdog’s plan to extend price cap branded ‘a stitch-up’

Tory MP says Ofgem plan will not end ‘rip-off’ for 17m households as promised in party manifesto as big six suppliers boost profit margins on energy bills.

The energy regulator’s plans to extend a price cap for vulnerable customers will not stop millions of households being ripped off, a Tory MP has warned.

Theresa May had pledged a price cap on energy bills for 17m families but the policy was missing from the Queen’s speech.

Instead, the business secretary, Greg Clark, wrote to the energy regulator asking it to safeguard “customers on the poorest value tariffs”.

Ofgem said on Monday that it will hold a summit in July to consider what form of “safeguard tariff” would be best, with one option being to widen an existing cap for the 4m households on prepayment meters to a further 2.6m vulnerable households who receive the Warm Home Discount. A consultation will follow soon after.

John Penrose, a Conservative MP and former minister who has led calls for a cap, said the plans were a “stitch-up” by the big six suppliers.

“Ofgem’s proposals will not end the energy rip-off for 17 million families, as we promised in our manifesto. Under this plan, fewer than 3m customers will be helped and the remaining 14m will see their energy bills rise as energy companies recoup the cost of the cap by milking the rest of us.”

Ofgem also said it would push forward with reforms recommended by the competition watchdog, including its own streamlined switching site and forcing firms to tell their customers if another supplier has a cheaper deal.

New data from the regulator shows that British Gas, EDF, E.ON, Npower and ScottishPower have increased the profit margin they make on billpayers from 3.7% on average in the 2015-16 financial year to 4% in 2016-17.

Further, Ofgem published figures that revealed that while the costs faced by suppliers in May were up 15% on the same time the year before, they had fallen 6% between February and May. In that same period, five of the six big suppliers hiked their prices for customers, some by as much as 10%.

Dermot Nolan, the energy regulator’s chief executive, wrote in a letter to Clark that: “Ofgem shares your concern that the market is not working well for all consumers, particularly those who do not regularly switch energy supplier.”

Consumer groups welcomed the prospect of the prepayment cap being widened.

Gillian Guy, chief executive of Citizens Advice, said: “We have been calling for the prepayment meter cap to be extended to all those eligible for the Warm Home Discount for years – and the regulator’s announcement today paves the way for protecting as many as 2.6m more who can least afford rising energy bills.”

However, Which? said that while more protections and easier switching were good, “people will question whether these interventions are enough to deliver an energy market that finally works for all consumers”.

Price comparison sites, who had strongly lobbied against an absolute price cap, were pleased by the announcement.

Ofgem said it would also be helping protect vulnerable households by capping the costs for people having a prepayment meter fitted under court orders at £150. Such charges can currently reach £1,000.

Another planned measure is a simplified switching service for people who have been on the worst-value default tariffs – known as standard variable tariffs (SVTs) for more than three years. The regulator will automatically provide a customer’s gas and electricity consumption data for them, to make the process easier.

Figures released by Ofgem show that 65% of people are still on an SVT, only fractionally down from the 66% when the data was first published last December.

The plans appear to be a long way from the prime minister’s promise of a cap saving 17m families £100 each, and confirmation that the government has bowed to industry lobbying.