The government has introduced a price cap on energy bills in an attempt to prevent suppliers overcharging households in the UK. However, some experts believe the first review of the cap could actually result in a rise in bills for 11 million people.
Last year, Ofgem revealed the price cap is intended to force providers to reduce the cost of their default tariffs, including their expensive standard variable tariffs, to either the level of the cap or below. They, therefore, would be prevented from charging excess amounts, which the watchdog reported would save typical customers on the most expensive tariffs £120 a year for their gas and electricity bills.
By removing £1 billion of overcharging, the average Brit would save £76 per annum, protecting 11 million customers who were on poor-value default deals prior to the implementation of the cap.
However, auto-switching service weflip has criticised the move, Utility Week has revealed, saying the industry is expecting one of the biggest energy price increases for years. Therefore, when the cap undergoes its first review on April 1st, it is unlikely to prevent bills increasing for the majority of customers.
While the initial cap was set at £1,137 a year on January 1st 2019, this will rise from April, no longer protecting those customers on the worst deals.
Head of energy at weflip Sally Jaques was quoted as saying: “It will be ironic if, three months after being introduced, the government’s own price cap unintentionally delivers one of the single biggest energy price increases the market has seen for years.”
She stated that the price increase could “more than wipe out any saving received from the cap in January”.
Ms Jacques commented the big price rise “will do little to convince consumers that the cap is making a big difference”, especially if the big six energy companies all raise their costs to the level of the cap. This would mean there is a lack of competition between them all, and customers would not be able to find many deals for their energy bills below the price of the cap.
Ofgem determines the cap based on an algorithm that looks at average wholesale prices over the previous six months. It then reviews the level bi-annually, which means customers could see their bills go up regardless of the government’s restrictions, if the cap is raised too.
Homeowners who want to avoid paying more than necessary for their heating bills, particularly during the colder months, should consider improving the energy efficiency of their property.
One of the most effective changes to make is replacing single-glazing for UPVC windows in Worsley. Having new double-glazing installed in the house will dramatically reduce the amount of heat lost to the outside, as well as how much cold air is let inside.
Other useful energy-saving strategies, according to the Energy Saving Trust, would be to make sure doors and windows are closed properly and are draught-proofed, switch appliances off the standby mode, and get the loft and cavity walls insulated.