I have been asked by constituents to ensure that a price cap is introduced in the energy market. 

As you are aware, the Government made a manifesto commitment to extend the price protection currently in place for some vulnerable energy consumers to more of those on the poorest value tariffs. In June, the Government wrote to Ofgemasking what action they intend to take and I welcome Ofgem’s commitment to protect a further one million families from expensive standard variable tariffs for the first time. This will take the total number of families protected from expensive standard variable tariffs to over five million. 

I recognise, however, that this does not address the scale of the detriment suffered by all consumers on expensive default tariffs. That is why the Government has now published a draft Bill which will provide for Ofgem to set a cap, or ‘safeguard tariff’, on the Standard Variable Tariffs that 60 per cent of people are on.The Safeguard Tariff will be designed by Ofgem, who will be tasked with setting it at such a level that it still leaves considerable motivation for consumers to shop around for the best deal, but improves the terrible prices paid by some people. 

You can read a copy of the draft Bill here:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/651268/CCS207_CCS1017179938-1_

Draft_Domestic_Gas_and_Electricity.pdf 

There is already a prepayment price cap in place protecting households least able to benefit from competition - in April 2017 a prepayment price cap came into force protecting over four million households using pre-payment meters. This will remain in place until the end of 2020 and will save the average household £80 a year. 

While I want the market to thrive and maintain the view that promoting competition is the best driver of value and service for customers, I am encouraged that the Government is prepared to act when markets are not working for all consumers.

12 October 2017 

Dear Colleague, 

Following the Prime Minister’s recent announcement, I am writing to let you know how the Government is taking action to protect consumers and tackle unfair practices in the energy market. 

As it currently stands, two thirds of customers in the UK are either on Standard Variable Tariffs (SVTs) or a tariff that the customer did not actively choose to be on (a default tariff). Last year the Competition and Markets Authority found that customers of the six largest energy suppliers were paying £1.4 billion a year more than they would if the market was truly competitive. 

Considering the scale of this detriment, the Government has a duty to act to secure customers’ interests. That is why the Government has published draft legislation to provide for a temporary cap on certain energy tariffs for domestic consumers, and asked the Business, Energy and Industrial Strategy Select Committee to scrutinise it. 

The draft Bill would place a duty on the independent energy regulator, Ofgem, to modify industry licence conditions to impose a price cap on the amount that energy suppliers can charge domestic customers who are on Standard Variable Tariffs or default tariffs. As the minority report of the Competition and Markets Authority recommended, the cap would be temporary and initially last until the end of 2020, with the potential to be extended by up to three years. The draft Bill also contains specific powers and consultation requirements to enable Ofgem to put the cap in place. 

For millions of customers, the energy market is not yet working. The Government’s priority is to safeguard the interests of these customers until the conditions for effective competition in this market are in place.

                                  THE RT HON GREG CLARK MP                           MARGOT JAMES MP

                                  Secretary of State for Business                             Minister for Small Business