Energy regulator Ofgem is now required to cap standard variable tariffs offered by the ‘big six’ energy providers for households using gas and electricity, which are far higher than other tariffs on offer.
The Competition and Markets Authority (CMA) found that overpayment to these energy suppliers to be an average of £1.4 billion a year. Some consumers could save up to £350 a year on gas and electricity bills by switching suppliers.
The Domestic Gas and Electricity (Tariff Cap) Bill will be in place by the winter.
Prime Minister Theresa May said: “For far too long older people, hard-working families and those on low incomes have been subject to rip-off energy tariffs. Our energy price cap will protect households from unfair price rises in time for this winter when people can feel the pinch more acutely. We know that the cost of living is still a challenge for some families and today marks an important step in helping people to keep more money in their pockets.”
Business and energy secretary Greg Clark added: “This Bill, which delivers on our manifesto promise, is a necessary intervention to protect millions of energy customers who have been stuck on poor value deals and hit by unjustified price rises for far too long. Switching will always save people money, but that doesn’t mean that customers should be punished for their loyalty.”
The UK government also announced that its flagship £6bn home energy efficiency scheme will be entirely focused on upgrading over one million low income and vulnerable households for the next three and a half years. The Energy Company Obligation scheme, which requires energy companies to supply heating and energy efficiency measures, will be entirely focused on households in or at risk of fuel poverty while being expanded so that more companies will be included.
Citizens Advice Scotland (CAS) said the energy price cap bill was welcome but more still needs to be done to protect consumers in Scotland.
CAS energy spokesman Craig Salter said: “The introduction of the price cap for default tariffs is a welcome intervention, and it will help protect some consumers against high price increases this winter.
“But this is only a first step. Last year, standard variable tariffs rose at three times the rate of inflation, and for many, energy bills remain unaffordable. With fuel poverty rates still at 26.5% in Scotland, and energy prices the key driver of this – particularly for the significant numbers of people reliant on electric heating – other measures are required to help consumers reduce their energy bills.
“We encourage consumers struggling with their energy bills to visit their local Citizens Advice Bureau, and we also urge energy companies to take action to move their customers to more affordable tariffs.”