Lower price cap could mean cheaper energy bills for 11m UK homes

Millions of homes in the UK could be in line for a reduction of £80 on their energy bills this winter under plans from the industry regulator to lower the energy price cap.

This week, Ofgem is widely expected to announce a lower cap on energy bills for 11m homes using standard variable energy tariffs, which could cut the average annual bill by 6%.

The regulator’s tighter cap on energy bills would take effect from October and remain in place through the winter months, to bring bills in line with lower gas market prices.

However, energy companies have warned the welcome news for households could be a death blow for smaller energy startups.

Eleven small energy companies have gone bust in recent years, many of which offered unsustainably low energy deals in order to lure customers away from incumbent players.

The lower price threshold for energy deals could put extra pressure on the small challengers ahead of the annual deadline for energy company payments.

In the past, failed energy upstarts have left a total of £170m-worth of renewable energy subsidies unpaid, after collecting them through energy bills, which the regulator clawed back through extra charges for established energy companies.

Energy bosses are understood to be frustrated because they feel forced to bail out the companies that are reducing their market share.

Ofgem has recently raised the financial requirements for companies to be granted an energy supply licence to crack down on the number of unsustainable suppliers competing to supply an essential home service.

But British Gas and SSE, the two largest suppliers in the market, are also calling for the energy price cap to be scrapped.

The cap was brought in by the Conservative government after the Labour party made freezing rising energy bills one of its 2015 election pledges, to protect consumers against “rip-off” energy tariffs.

Iain Conn, the outgoing boss of British Gas’s parent company, Centrica, said Boris Johnson’s government should consider scrapping the cap.

How ‘smart homes’ and price caps drained Centrica’s power

SSE has said it plans to use a new government consultation on the energy market to call for an overhaul of the energy price cap.

It said Ofgem should continue to intervene in the market to protect vulnerable energy customers who may find it difficult to shop around for a better deal. Otherwise, the regulator should abandon a mandatory cap on energy deals in favour of a benchmark guide price.

Rebecca Long-Bailey, Labour’s shadow business and energy secretary, said there was a danger that Johnson would “hike up energy bills for millions of people” by scrapping the cap.

“The next Labour government will retain and strengthen the energy price cap to keep bills down for the British people, bring the grid into public ownership to end the rip-off and launch a green industrial revolution to create jobs and cleaner energy,” she said.

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