In October 2020, the Government extended the Energy Price Cap. As a result, consumers across the UK will continue to be protected from overcharging on their energy bills. The cap ensures that loyal energy customers are protected from poor value tariffs. In Great Britain, this is likely to impact the price we all pay for our energy. To date, the Government’s Energy Price Cap has insulated millions of customers from feeling that increase. However in April the Price Cap’s level will likely increase again to reflect the sustained increase in the wholesale gas price – this makes up around 41 per cent of an average gas bill. While nothing has been finalised, I would like to reassure you that my colleagues in the Department of Business, Energy and Industrial Strategy (BEIS), the Treasury and officials from Downing Street are in continuing talks with Ofgem and executives from the UK’s biggest energy suppliers to deal with this. The Government is absolutely clear that protecting the public is its top priority.
The Secretary of State for BEIS has reiterated that the Government is committed to the energy price cap and it will remain in place. The cap will continue to protect 15 million customers from sudden increases in global prices this winter. Meanwhile, the Government's Warm Home Discount, Winter Fuel Payments and Cold Weather Payments will continue supporting millions of vulnerable and low-income households with their energy bills. I agree that it is absolutely vital that the energy supply sector remains a liberalised competitive market in order to deliver value and good service to consumers.
The Energy Price Cap is set by the energy regulator Ofgem, which reviews it every six months to reflect changes in the cost of supplying energy. This ensures those who do not shop around, often elderly and low-income households, are protected from paying over the odds. Determining efficient costs is inherently challenging, but this is the product of Ofgem’s wide-ranging and in-depth benchmarking exercise. More than half of customers are still on standard variable or default tariffs, where, in the absence of the cap, they would likely still be paying excessive charges for energy use.
I appreciate you are disappointed that Ofgem raised the cap in October 2021. I understand that Ofgem's decision, which affects 15 million households, is due to an increase in prices on the wholesale energy markets. Wholesale prices fell in the summer of 2020, after the first lockdown and Ofgem reacted by reducing the level of the cap by £84 for winter 2020. However, in February 2021 the cap was increased by £96 as wholesale costs increased. The wholesale cost of energy has continued to increase and has climbed by more than 50 per cent since February and this is the reason for the latest increase.
This clearly has been a difficult time for households and I know that Ofgem will have taken into account the challenging circumstances many people are facing during this pandemic. Ofgem has urged customers to shop around to benefit for the best tariffs. Ofgem estimate that the average household is £75 - £100 better off each year than if the price cap was not in place. Consumers on capped tariffs can save even more my shopping around for a cheaper tariff.
I am assured that Ofgem and the Government have been working closely the energy industry and consumer groups to support customers through this difficult time and I urge anyone worried about paying their energy bills to contact their supplier and access the support available.
I welcome that Ofgem has set out its approach to deal with the current energy price volatility with measures and consultations focused on: strengthening suppliers’ financial resilience so that they can cope with these high and more volatile energy prices and potential adjustments to the price cap methodology so that it can continue to protect consumers at times of high price volatility without creating unsustainable risks for suppliers. This comes with several consultations and calls for evidence. These consultations have now closed and Ofgem is reviewing the responses.
If an energy company fails, the Government has been clear that it will not bail them out. It is wrong for the taxpayer to prop up companies who have poor business models and are not resilient to fluctuations in price. There are clear processes in place to ensure that all customers are supplied with energy. When an energy supplier fails, Ofgem typically appoints another supplier to take on serving its customers and there is no interruption to supply. More broadly, I am glad that the Government is working to reduce bills and tackle fuel poverty, such as through the introduction of schemes to improve energy efficiency measures in homes. In addition, the Government’s Energy Company Obligation and expanded Warm Home Discount schemes will provide at least £4.7 billion of extra support to low-income and vulnerable households between 2022 and 2026.