A report has been published by a BEIS (Business, Energy and Industrial Strategy) Select Committee on the government’s draft bill to cap on standard variable tariff (SVTs) bills for domestic customers after the Business Secretary asked to scrutinise the legislation before it is presented in Parliament.
The legislation has been driven by MPs following requests that the energy sector produced a ‘self-regulated’ response to the threat of a price cap which produced lacklustre results. Suppliers did not take repeated warnings from the government seriously enough leading to underwhelming measures being announced by some of the big six in the hope to avoid a cap with others taking no action at all. Such measures included the promise to phase out SVTs for customers who take smart meters which was seen as insufficient to address the scale of the problem. The MPs who have lobbied for the bill argue that the energy retailers that were found by the Competition and Markets Authority to be operating inefficiently and passing excess costs onto standard variable and default tariff customers have brought this intervention upon themselves.
The committee has also accused Ofgem of being too slow to react and reluctant to use its extensive powers to step in and protect customers. The report states that the energy regulator needed repeated prompts to start actively safeguarding some consumers against overcharging. The report urges Ofgem to be more proactive in the future in discharging its statutory duties towards consumers.
As a result of these failures, the committee gives its backing to the government’s initiative to cap standard variable and default tariffs. The committee also supported moves to make the cap absolute to prevent suppliers increasing their lowest prices. Amendments were also suggested to require a review at least every six months by Ofgem of the level at which the cap is set and to amend the legislation to guard against the risk that energy companies could use the exemption of green electricity tariffs from the wider cap as a loophole to continue overcharging customers.
The price cap is intended as a temporary measure however the Prime Minister has suggested that this could be in place until at least 2023. There is concern that a long term price cap may affect the growth of competition within the sector. With a record one in six customers switching supplier last year and over sixty suppliers to choose from, the energy market is changing rapidly and has never offered so much choice. It is vital the cap does not halt the growth of competition which is helping customers to find a better deal and save on their energy bills.
The report calls on the government to ensure that the bill receives Royal Assent before the parliamentary summer recess so that it can be implemented next winter. We are now almost on the other side of winter and with four million households affected by fuel poverty in the UK, the government must not delay this legislation any further.