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New law to impose absolute price cap on poor value energy tariffs

12 October 2017

Britain will publish on Thursday a draft law created to cap consumer energy prices for millions of households, taking action to try and fix a market it says punishes loyal customers.

The Government's plans follow an announcement by Ofgem that it is extending its existing price cap for 5m vulnerable consumers this winter.

The energy regulator Ofgem has announced it will extend its price cap to one million more vulnerable households this winter.

Prime Minister Theresa May first proposed a price cap on the energy sector earlier this year, the biggest market intervention since its privatisation nearly 30 years ago.

To help with this, Ofgem is introducing new rules today to allow suppliers to roll customers coming to the end of their contracts onto another fixed deal instead of a poor value standard variable tariff.

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The leftist opposition Labour Party, which has long advocated intervention in energy markets, performed better than expected at a June snap election, depriving May of an outright majority in parliament.

The plan to cap energy charges was revived last week by Mrs May.

For now, the regulator said suppliers must ramp up their efforts to get more of their customers on default tariffs onto better value deals.

"Today's publication of draft legislation is a vital step towards fixing that and in offering crucial peace of mind for ordinary working families all over the country".

Ofgem said that whatever was contained in the upcoming legislation, the government's price cap would not come into effect for the upcoming winter.

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Greg Clark, the Business and Energy Secretary, said: "The energy market is broken".

The Competition and Markets Authority found that customers of the Big Six energy suppliers on default energy rates were paying £1.4bn a year more than they needed to.

He added that the draft legislation would send a "clear message to suppliers they must act to put an end to loyal consumers being treated so unfairly".

"An absolute cap would throttle competition, be out of date as soon as the wholesale price of gas goes up or down, and energy firms would spend more time lunching their regulators than delighting their customers".

There has also been a guarded welcome for the draft Bill from consumer organisation Which.

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Alex Neill, Which? managing director of home products and services, said: "For millions of consumers anxious about their energy bills, a cap might sound like a positive move".

New law to impose absolute price cap on poor value energy tariffs