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Energy price cap is an early April Fool's joke

  • Price cap needed to fall by £84 just to keep up with competitive markets - instead consumers get just £17
  • Customers on default tariffs are worse off than before price cap came into effect
  • Customers on default tariffs have already lost out on £392 of savings. They continue to lose £32 each and every month
  • Energy Price cap must and will end on 31 December 2020 according to TheEnergyShop.com

Today (7 February 2020), Ofgem, the gas and electricity regulator, announced the level of the Energy Price Cap for the 6-month period commencing 1 April 2020.

With effect from 1 April 2020, customers on Standard Variable Tariffs (SVTs) and other default tariffs will see their bills cut by an average of £17 (1.4%).

This is the fourth time that the Energy Price Cap has been set since it was first introduced on 1 January 2019.

So far, we've had 3 cuts totalling £176 with a massive hike of £117 in between.

On balance this leaves Standard Variable Tariffs £59 lower than they were before the price cap came.

Energy Price Cap (v4) - key elements summarised

The default price cap will fall by £17 (1.4%) to £1,162 from 1 April 2020. It will affect approximately 11 million households.

The new level of the cap will run for 6 months from 1 April 2020 through to 30 September 2020, when it will be reset again (likely for the final time).

Falling wholesale energy prices led to a reduction of £38 in the cap. This was offset by a £22 increase in other charges (operating costs, network charges, smart meter costs and environmental schemes).

TheEnergyShop.com analysis - why the cap will end in 2020

As a quick reminder, the energy price cap was introduced to bring "an end to rip-off energy prices once and for all".

The energy price cap was supposed to achieve this by reducing the spread between poor value Standard Variable Tariffs and the cheapest energy deals in the competitive market so that those customers who, for whatever reason, couldn't or wouldn't switch would end up overpaying by less.

The reality is that the spread between SVTs and the cheapest deals has actually increased. This means that price cap protected customers are overpaying by more than they did without the cap. This is the exact opposite of what the price cap was designed to achieve. In terms of its main fundamental objective, the energy price cap has been an abject failure.

According to analysis from energy comparison website TheEnergyShop.com, the default tariff cap has failed to keep up with the competitive market. As the graph below shows, potential savings from switching before the cap came into effect were around £320 a year. After the latest energy cap comes into effect, potential savings from switching will have jumped to £385. That is because competitive energy tariffs have fallen much faster (£126) than has the price cap (£59). And while there was a period where the cap narrowed the difference, this was very short lived indeed. On balance, the default tariff cap has not only not protected consumers from lousy energy deals, it has actually made matters worse.

TheEnergyShop.com is predicting that the price cap will finally end on 31 December 2020 for these principal reasons;

  1. It has been an abject failure in its single principal objective - to protect consumers from rip off deals. In contrast it has actually made matters worse.
  2. It has helped create carnage in the energy industry leading to the failure of some energy suppliers and inconvenience for affected customers.
  3. Politically this is essentially a Labour Party initiative. We believe that once the evidence of its failure becomes more widely accepted, the current Conservative government will want to distance itself from this market intervention.

Comment

Joe Malinowski, founder of energy price comparison website TheEnergyShop.com commented.

"To keep up with the competitive market, the energy cap needed to be cut by at least £84. Instead consumers are getting a paltry £17. This is not just a slap in the face for consumers, but a blow to the gut followed by a kick in the teeth when they are down."

Joe Malinowski, continued

"The energy price cap has been an abject failure. Consumers are over-paying by more under the energy price cap than they did before it was introduced. Not only do consumers have to contend with rip off energy prices from the Big 5 but also a regulator that does not appear to be on their side".

Joe Malinowski, concluded

"That is the why the energy price cap must and will end on 31 December 2020. In the meantime, 11 million customers on standard default tariffs have already each lost out by £392 since the cap came into effect. They will each continue to lose an additional £32 a month for a long as they stay on a default tariff. Savvy switchers, in contrast, are laughing all the way to the bank with their quick and easy £385 savings just by switching their energy tariff."

Energy Price Cap Summary

Energy Price Cap VersionFromToPrice LevelChange
11 Jan 201931 Mar 2019£1137£76 cut across all suppliers Ofgem estimate (£84 cut for Big 6)
21 Apr 201930 Sep 2019£1254£117 increase
31 Oct 201931 Mar 2019£1179£75 cut
41 Apr 201930 Sep 2019£1162£17 cut

Contacts

Scott Byrom
Chief Executive Officer
07772 129 591
scott.byrom@theenergyshop.com

Joe Malinowski
Founder
07970 160 541
joe.malinowski@theenergyshop.com

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