Theresa May is expected to forge ahead with an energy price cap this week despite misgivings among Tory ranks and warnings it could prove a “political and consumer timebomb”.
If the prime minister opts for the wide-ranging intervention promised during the election – which she said would save 17m households up to £100 on bills – such a measure would require primary legislation and feature in the Queen’s speech on Wednesday. Cabinet ministers have told May to drop the proposal, according to a report last week, but it is understood some form of restriction on bills will be introduced.
However, there is a possibility that the government will bow to pressure from ministers by introducing a watered-down “relative” cap. A relative price cap would see the most expensive deals from a supplier pegged at no more than a certain percentage above the cheapest tariff offered by that company.
Opposition to a cap has also emerged from outside Westminster. One leading price comparison website on Monday called the plans a “political and consumer timebomb”.
uSwitch, which relies on competition and people switching energy deals, said a ceiling would hurt rather than help consumers.
“Competition will be diminished and cheaper deals would be taken off the market as tariffs moved closer to the cap,” said Richard Neudegg, the site’s head of regulation.
He echoed previous warnings by the big six suppliers that because energy regulator Ofgem would eventually have to increase the cap in order to reflect rising wholesale prices, blame would shift from energy firms to ministers.
“Any government which introduced this cap could find itself being blamed for raising prices and removing the escape route to avoid them, namely competition,” he said. “Instead of responding to consumer dissatisfaction, they would have created a political and consumer timebomb.”
Pro-cap Conservatives are likely to get further ammunition within the next fortnight, when British Gas is expected to hike prices for the three-quarters of its 14 million customers.
The UK’s biggest energy company was the only one of the big six suppliers not to raise prices last winter, freezing them until August. But it has to give customers 30 days’ notice of any increase, and is understood to be battling rising wholesale costs.
One of the firm’s rivals, E.ON, last week launched a new tariff designed to tempt people off default energy tariffs. The “cap and track” deal is fixed for 12 months at £100 below the market average when customers sign up. While it cannot increase during the contract, it will be reviewed each quarter and will fall if the wholesale price has fallen.
“This is one of the many ways we’re helping to boost engagement in the energy market, particularly with people on standard variable tariffs,” said Chris Lovatt, the company’s director of residential operations.
uSwitch said that in lieu of a cap, the government should work with suppliers and consumer groups to ensure billpayers get clearer information on how and why they should switch.
The charity Citizens Advice reiterated its call for a cap to help more vulnerable customers, highlighting figures that show about 70% of the highest earners are on the cheapest energy deals, versus 12% on the lowest incomes.
Although industry figures show 440,000 people switched supplier in May – up 19% on May 2016 – nearly 5m households in England have not switched supplier for a decade.
Citizens Advice favours widening an existing cap for the 4m households on prepayment meters to a further 2.6m who are eligible for the warm home discount, a government scheme to help people struggling with their energy bills.
“The choice does not need to be between capping costs for all or for none – there is a real opportunity to protect the most vulnerable who are struggling to pay their energy bills. The momentum to make this happen must not be lost,” said Victoria MacGregor, Citizens Advice’s director of energy, in a blogpost.
The charity also called on the government to set annual targets for suppliers to get their customers off standard variable tariffs, which are used by more than two-thirds of people.