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Uswitch comments on draft bill on energy price caps

Theresa May has announced that the Government will bring forward a draft bill next week to introduce a price cap on energy bills. Commenting on the news; Richard Neudegg, Head of Regulation at Uswitch.com, says:

“We have warned repeatedly that a widespread price cap will not improve the retail energy market as some think it will. All the evidence from previous interventions like this shows that it does not lead to long-term improvements for consumers.

“Any Government intervention must commit to helping competition work for everyone. The only way to keep energy companies in check is to maintain the pressure of competition on them to keep prices down for all their customers.

“The Government should instead push suppliers to proactively get their customers off expensive standard tariffs and set targets to encourage more customers to make a choice about their energy deal. A price cap condemns energy customers to more of the same – it lets suppliers off the hook by encouraging consumers to stay put instead of voting with their feet.

Find out how you could save over £1,000 a year with Uswitch here.

FOR MORE INFORMATION

Tim Dunford

Phone: 020 3872 5612

Mobile: 07785 552666

Email: tim.dunford@uswitch.com

Twitter: @uswitchPR

Notes to editors

The best way to ensure more people get a better and fairer energy deal is to boosting competition in the market and provide greater support for vulnerable consumers. Uswitch believes that the government can achieve this through practical, realistic and ready-to-implement interventions that will make the energy market work better for everyone, without the need for a damaging price cap.

  1. Reaching a switching tipping point: market competition can be used to reach a tipping point which would compel suppliers to ensure that their customers made an active choice about their energy tariff regularly. This can be achieved if suppliers move households off expensive SVTs to cheaper deals and provide reminders to check whether they are on a good value tariff.

 

  1. Targets: the Government and Ofgem should consider setting targets for energy companies to move customers off SVTs, with penalties for missing these targets, compelling them to put serious effort into finding ways of engaging their customers to make a decision about their energy tariffs. The proportion of customers on standard tariffs now at 64% (down from 69% in March 2015) and switching rates continue to rise (at 15% in 2016). An interim target of reducing the number of households on SVTs to less than 50% by the end of 2020 is therefore realistic and achievable. SVTs would then become the exception rather than the norm, and the level of competition in the market would be enough that even the remaining disengaged customers (i.e. those not on prepayment meters or defined as vulnerable) would be protected due to suppliers feeling a realistic threat of them leaving.

 

  1. Protecting vulnerable consumers: Uswitch agrees that some consumers are so disengaged from the energy market that additional, targeted reforms are needed to ensure they are not left behind or unfairly treated. It is right that Ofgem is currently finalising proposals to protect vulnerable consumers with targeted support. The Government should allow time for these proposals to be implemented before considering further interventions unless it will encourage consumers to make an active choice about their energy deal.

 

  1. Protecting a smart energy future: A wider price cap puts at risk the Government’s own vision of a smart energy future which transforms the way homes and businesses use and store energy, and will enable suppliers to offer lower tariffs. This requires engaged consumers making active choices about their energy supply and usage, which a widespread cap would actively discourage.

 

  1. Reforming the Warm Home Discount (WHD): The WHD offers vulnerable consumers £140 off their annual energy bills and is an additional way of supporting the most vulnerable. Currently the scheme is mandatory for suppliers with over 250,000 customers but there are many small suppliers who are not obliged to offer the WHD. By extending the scheme to all energy companies, consumers receiving the WHD would have more confidence in moving to smaller suppliers, who are likely to be offering better deals.

  In addition, the government should address the situation whereby currently suppliers have flexibility in determining who qualifies for the WHD, beyond the ‘core group’ of pensioners who receive it. Suppliers often offer WHD on a first-come, first-served basis, but this doesn’t give any certainty to vulnerable households at risk of fuel poverty. Instead, a common set of vulnerability criteria should be formalised, and access to the WHD guaranteed for any consumer meeting these.

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