Energy cap 'could raise bills' warn consumer groups

Theresa May has revived the idea of an energy price cap which she says will save 12 million householders an average of £100 a year.

The cap would apply to people on a Standard Variable Tariff, who often face higher bills than fixed term customers.

However, some consumer groups warned that it could mean higher prices for all customers.

Revealing the plans at the Tory Party Conference in Manchester, Ms May said the move would help vulnerable customers.

Full details of the plan, which will be implemented by energy regulator Ofgem, will be unveiled in a draft Parliamentary bill next week.

“The energy market punishes loyalty with higher prices, and the most loyal customers are often those with lower incomes, the elderly, people with lower qualifications and people who rent their homes,” she said.

But consumer groups said that the government should instead encourage suppliers to proactively get their customers off expensive standard tariffs and set targets to encourage switching.

Martin Lewis, founder of MoneySavingExpert.com, said: “It’s a national disgrace that a struggling 90 year-old granny pays substantially more to boil a kettle than an affluent web-savvy man like me.

“However a price cap done wrong can do more harm than good. Some in the Tories have called for a ‘relative’ price cap – which means a firm’s most expensive price can only be a set percentage more than the cheapest. That’s self-defeating – it means they’ll just withdraw cheap deals.”

Richard Neudegg, head of regulation at uSwitch.com added: “We have warned repeatedly that a widespread price cap will not improve the retail energy market as some think it will.”

However, Citizens Advice Scotland said the move would benefit customers north of the border, who suffer from more fuel poverty than those in the south.

Kate Morrison, energy policy manager at Citizens Advice Scotland’s Consumers Futures Unit, said: “This is a particular issue for Scottish consumers, given our cold wet climate and high fuel poverty rates. We would welcome any action that makes bills more affordable.”

The idea of a cap had previously been mooted in the Conservative’s election manifesto, but was not mentioned in the Queen’s Speech in June.