Energy price cap plans must be introduced urgently to stop millions of loyal and vulnerable customers being ripped off, a powerful committee has told the Government.
The Big Six energy companies have been overcharging for years and have brought plans to limit bills on themselves, MPs said in a report published today. After reviewing draft laws, they backed plans for a temporary absolute cap to fix the “broken” energy market.
We conclude that the Big Six have brought this policy intervention upon themselves by raising their prices in 2017 and by failing to take effective action against the overcharging of their customers on default and standard variable tariff.Report by the Business, Energy and Industrial Strategy Select Committee
The Business, Energy and Industrial Strategy (BEIS) Select Committee also criticised regulator Ofgem for failing to use its extensive powers to protect customers, especially the most vulnerable.
Labour MP and committee chairwoman Rachel Reeves, who represents Leeds West, said: “The energy market is broken. Energy is an essential good and yet millions of customers are ripped off for staying loyal to their energy provider.
“An energy price cap is now necessary and the Government must act urgently to ensure it is in place to protect customers next winter.
“The Big Six energy companies might whine and wail about the introduction of a price cap but they’ve been overcharging their customers on default and SVTs (standard variable tariffs) for years and their recent feeble efforts to move consumers off these tariffs has only served to highlight the need for this intervention.”
Business Secretary Greg Clark published draft legislation for an absolute cap on “rip-off” energy tariffs last year. But he refused to guarantee that the flagship plans would be in place by next winter.
Customers are paying £1.4 billion a year over the odds under the current system and around 12 million are stuck on poor-value tariffs, according to the report.
The committee said there was a “clear lack of will” on the part of the Big Six to take the steps needed to address pricing problems.
Consumers should not be expected to have to “constantly defend themselves from excessive prices”, it added.
Ofgem should review the level of the cap at least every six months to keep up with changes in suppliers’ costs and consumer engagement, MPs said.
The regulator must also be “alert to and be prepared to stop” forms of pricing designed to dodge the cap by exploiting loopholes.
“We conclude that the Big Six have brought this policy intervention upon themselves by raising their prices in 2017 and by failing to take effective action against the overcharging of their customers on default and standard variable tariffs,” the committee’s report stated.
Citizens Advice said “loyal and vulnerable” customers had been “ripped off” for too long.
Chief executive Gillian Guy said: “An absolute cap, as recommended by the committee, is crucial to securing protection for the largest number of customers while continuing to provide competition in the market. This should apply to all default tariffs.
“However, we continue to hold reservations over the inclusion of a sunset clause tied to an arbitrary date.”
Energy market isn’t working for customers
Business Secretary Greg Clark said: “Today’s in-depth independent report from MPs backs up exactly what we have been saying - that the energy market isn’t working for customers stuck on rip-off tariffs and that government intervention is justified.
“That’s why we’re taking action by bringing in laws to cap prices so that consumers are protected from high energy bills.”
An Ofgem spokesperson said: “Ofgem is determined to deliver a better deal for all consumers.
“This is why we are pressing ahead as quickly as possible with plans to further extend price protection from five million consumers to all those on poor value default deals as soon as the Tariff Cap Bill is passed by Parliament.
“Our aim is to protect those who do not switch, while making it easier for those who do to get a better deal.”
Lawrence Slade of trade body Energy UK said the energy market was changing rapidly and has never offered so much choice, with one in six customers switching last year.
He said: “It’s vital the cap doesn’t halt the growth of competition which is helping customers to find a better deal and save on their energy bills.
“It’s also important that the cap accurately reflects suppliers’ costs, most of which are out of their direct control. Ofgem’s decision to raise the level of the prepayment cap last week shows how these costs can increase. Suppliers will remain committed to further improving engagement and choice for all their customers.”