UK Government writes letter to energy firms to urge support for price cap

The UK government has written an open letter to utility companies, urging them to support a new energy price cap which could save families £100 a year - and warning them that the measures already taken by firms "do not go far enough".

The energy price cap is aimed at ending the "two tier system".

The letter from secretary of state Greg Clark and minister of state Claire Perry, tells the Big Six firms that their current moves to make the market fairer for customers are "tentative". The temporary cap, which will allow the regulator Ofgem to limit standard variable tariffs (SVTs) until 2020, with the option to extend the cap annually until 2023, would affect 11 million households.

People on SVTs have often ended up on the tariff because they have failed to switch tariff or supplier.

However, consumer groups warned that the new price cap would "not fix the market" and could deter customers from switching.

The letter said: "There is in effect a two-tier market. Those households who are prepared to shop around can, on average, save around £300 from switching from a standard variable tariff of the Big 6 to the cheapest tariffs on the market. But far too many customers remain on poor value tariffs. It is of particular concern that these customers typically tend to be more vulnerable than those who are getting the best deals. While we have seen recent tentative steps by large suppliers to improve their treatment of loyal customers, in our view these do not go far enough.

"We have said previously that our intention is to introduce a temporary cap to protect consumers, while the objective of a more competitive market is achieved. I am sure that you support that objective."

Peter Earl, Head of Energy, comparethemarket.com, said: “The price cap legislation will not fix the problems in the energy market. It targets Standard Variable Tariffs, whose days already look numbered with some of the largest suppliers in the market already having published plans to scrap them for their customers. The danger is that energy customers are lulled into staying with one provider rather than shopping around in the mistaken belief that the cap will level the playing field. It won’t - thousands will still be on uncompetitive default tariff."

Martin Lewis, founder of MoneySavingExpert.com, said: "A price cap is a halfway house. Politicians have to make their minds up. Do they see competition and switching as the solution, or do they want to regulate prices?"