Impact report warns suppliers' profits could be hit by price cap

Prime Minister, Theresa May, said: "It's often older people or those on low incomes who are stuck on rip-off energy tariffs, so today we are introducing legislation to force energy companies to change their ways".

"We hope you will work constructively together with government and parliamentarians to ensure the bill passes smoothly through parliament and that you will support Ofgem's work to ensure the cap is implemented in time for next winter", they wrote.

It says that large and mid-tier suppliers will suffer the biggest fall in profits because they have the biggest SVT customer base and their default deals tend to be amongst the most expensive on the market.

Gillian Guy, chief executive of Citizens Advice, said the new Bill was "a significant step towards an energy market that works for everyone".

The Government has claimed that the Domestic Gas and Electricity Bill, which was introduced on Monday and will allow regulator Ofgem to limit tariffs until 2020, could save people up to £100 a year.

The government has confirmed that it will seek an exemption for green energy tariffs from its looming price cap.

The proposed price cap is not expected to come into effect until early next year. The measure will protect 11 million households now on the highest energy tariffs, as well as 5 million homes already protected by Ofgem.

There's a £305 difference per year between the priciest standard tariff with one of the Big Six energy companies and the cheapest tariff on the market. May has followed on with these plans after she promised to crack down on "rip-off" bills in her keynote speech at the Conservative party conference. Beyond this, Ofgem will need to recommend to the government whether it should be extended.

However, the scathing report by the regulatory policy committee will be an embarrassment for the government, which published the legislation on Monday in order to impose the cap by next winter. It will review the level at which the cap is set every six months. Energylinx offer an impartial energy comparison and switching service.

Lawrence Slade, chief executive of Energy UK, which represents power companies, 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'.

However, the cap is temporary and will only remain in place until 2020.

The committee says that evidence from the prepayment meter market, which has been subject to a cap since April a year ago, shows that it is still possible to obtain tariffs £50 below the level of the mandated limit on default deals.

"It's also important that the cap accurately reflects suppliers' costs, most of which are out of their direct control".

She added: "Millions of loyal energy customers have been ripped off by their suppliers for too long".

(Copyright © 2015. All Rights Reserved.)
 
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