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Ofgem announces default tariff price cap at £1,137

Experts criticise energy price cap as a ‘trap’ that creates a ‘false sense of security’

electricity meter

Today Ofgem set the official price at which energy suppliers must cap their standard rate variable tariffs as £1,137 per year (for the typical dual fuel customer paying by direct debit), effective 1 January 2019.

Referred to as a safeguard tariff, this amount is still £216 more than the cheapest energy deal currently on the market.

The news comes during unprecedented energy switching activity among UK consumers and record levels of competition, fuelling concerns that a price cap will not only dampen competition but make some customers — particularly those on expensive standard rate tariffs — believe that they are protected and on a good energy deal.

The default tariff cap is a ‘trap’ providing a ‘false sense of security’

Poor customer service, sky-high bills and the perception that switching energy providers is difficult are issues that will not be addressed under a price cap.

Additionally, prices can still rise under a price cap, as was the case with the prepayment price cap which saw a £104 rise this year.

“Ofgem’s suggestion that households on standard variable tariffs will save an average of £76 from January may not be realised,” says Richard Neudegg, Head of Regulation at uSwitch.com.

“Consumers should not be lulled into a false sense of security – there is a very good chance that the price of standard tariffs will change three times over the next 12 months, and potentially for the worse rather than the better.

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“As Ofgem themselves suggest, initial savings could be wiped out as early as April when rising wholesale costs may force the cap to increase, so standard tariff energy customers can only rely on three months of savings — averaging around £19 — before the cap potentially goes up.

“It’s possible the same could happen in October, too. With the cheapest deal on the market a staggering £216 cheaper than the capped tariff, customers may well be questioning why they are leaving their bills in the hands of the regulator.

“The only way to escape the cap trap is by coming off these tariffs altogether and we welcome Ofgem’s continued commitment today to make it even easier for customers to shop around.

“Energy customers who need peace of mind this winter should switch to a fixed deal, securing the rates they will pay for at least twelve months – compared to the three months offered by the cap level announced today. By switching now there is time to make far more substantial savings to energy bills before the cold weather takes hold.”

The most effective way to save is to switch

Though a price cap sounds positive at the outset, a savings of £76 is far less than the up to £482 savings that can be made from switching energy supplier with uSwitch. Not to mention, the £76 worth of savings is unlikely to be seen from consumers as the cap amount is expected to rise as soon as April 2019.

 

Read more

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  • Jaden

    Misleading article. You are providing exact figures with no context… You should explain that you pay per unit and a daily standing charge. Not a round lump sum. These exact figures are a joke and do nothing but confuse people who don’t know any better….

    • Stuart J Willson

      YES I agree, unit prices NOT lump sums should be quoted. we are all being ripped off with electrical prices compared to other countries. something has to be done.

      • ronthedog

        Spot on. Lots of people will look at the figure and think “well, I’m paying less per year than that so I must be on a good deal”, when in truth the chances are that they bear little resemblance to the so-called typical customer on whom the number if based. Simple fact is, whether talking about electricity or gas the same rule applies. If one uses a lot of it, the lowest unit price is the prime consideration, if one uses very little the lowest standing charge is the first thing to look for. Even then, sitting down with one’s bills and calculating how a proposed new tariff compares to what one is currently on is the only way to be sure that one has the balance right.

  • Philip Antonia

    This just sounds like a Uswitch sales pitch, not factual info for the consumers!!

  • Stanley Smith

    I switched to peoplesenergy.co.uk and have a good discount from my other suppliers PLUS a share of the profits in year to come… what’s not to like.

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