The Prime Minister’s cap on energy prices to protect households from rip-off bills will be a “temporary measure”, it has been revealed.
In a statement to financial markets, ministers revealed their plans for a draft law to cap energy prices for those on a standard variable tariff and other default tariffs.
But the law will expire in 2020, it was disclosed, with the potential for it to be extended for a further three years at most.
If passed, the proposed legislation would force regulator Ofgem to impose an “absolute cap” as soon as possible.
A pledge to change the law was included in the Conservative manifesto before June’s General Election, but was dropped from the subsequent Queen’s Speech after some Tory MPs claimed it was state intervention and anti-free market.
But after 192 MPs of all parties wrote to the PM in September complaining that poorer customers were being preyed on by energy firms, Mrs May revived the plan and backed a price cap in her recent Tory conference speech.
Suppliers reacted with fury as billions of pounds were wiped off the value of their shares after the pledge.
The draft bill putting a cap on tariffs will be scrutinised by the Business, Energy and Industrial Strategy Select Committee of MPs, in a move the Government says will help build a cross-party consensus.
Under the bill, the regulator Ofgem would bring in a price cap on the poor value tariffs that exploit customer loyalty, which would protect around two-thirds of households and 18 million customer accounts, according to the Government.
“I have been clear that our broken energy market has to change,” the Prime Minister said.
“It has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much.”
Speaking in the Commons, Business Secretary Greg Clark said the bill would “preserve the ability for the market to act competitively” and “allow for effective competition and to give a reason for people to shop around”.
The Competition and Markets Authority found that customers of the so-called ‘big six’ energy suppliers on standard variable and default energy tariffs are paying £1.4bn a year more than they need.
Ofgem this week announced it is extending its existing price cap for vulnerable consumers and the Government says five million households will now, for the first time, benefit from protection against rip-off energy bills this winter.
Four million of those are on pre-payment meters.
The regulator will, from February, protect a further one million households who receive the Warm Home Discount.
The Government says it welcomes Ofgem’s move, but claims the regulator could go further to protect everyone on default tariffs from unfair practices.
Labour’s shadow business secretary, Rebecca Long-Bailey, described an energy price cap as a “suitable temporary measure” but claimed “the market as a whole needs to be reformed”.
Speaking to Sky News, she challenged the Government to meet her party’s plans for a cap of £1,000 on the average household energy bill.
Responding to the bill’s unveiling in the Commons, Ms Long-Bailey said the Government had taken too long to act.
She said: “Due to the Government’s dithering, the four million households in fuel poverty – almost one million of which includes a disabled person – will face another winter of cold homes and astronomical bills. ”
(c) Sky News 2017: Theresa May’s promised energy price cap will expire in 2020