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Energy bills and proposals for reform

Published Thursday, October 5, 2017

During her speech to the Conservative party conference on 4 October 2017, the Prime Minister Theresa May announced that the Government would publish a Draft Bill to put a price cap on energy bills. There has been a mixed response to this announcement. Energy UK, the industry trade body, said the cap could interfere with competition and instead advocated energy efficiency measures. Whereas, Citizens advice welcomed the plans as a potential “solution to runaway energy costs.”

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Many energy retailers have made significant increases to their standard variable electricity and gas tariffs since late 2016, whilst many of their cheaper deals have been withdrawn. Standard variable tariff rates have increased by up to 15% but some consumers have faced even steeper increases due to ending fixed deals.

The reasons for these changes are complex, compromising fluctuating wholesale energy prices, rising operational costs and the impact of green levies. The key issue is that since privatisation of the market in 1980s and 90s, customers have remained on standard variable tariffs often with the ‘big six’ suppliers, and have not switched. The result is a lack of competition in the market, and many customers on poor value deals.

The market regulator Ofgem referred the energy market to the Competition and Markets Authority (CMA) in June 2014 due to concerns it was not providing the best service for customers. The resulting report found that customers are overpaying around £1.4bn and suggested over 30 new measures to reform the market.

The increasing cost of energy has become a key political issue and price capping appeared in both the Labour and Conservative manifestos in the 2017 election. The focus on putting a form of “cap” on standard variable tariffs was discouraged by the CMA. Industry representatives are concerned that a cap would reduce competition, harming consumers and small suppliers, as well as discourage investment in infrastructure. However the ongoing squeeze on wages and living standards has meant action on energy bills is becoming popular.

The Secretary of State for Business, Energy and Industrial Strategy Greg Clark wrote to Ofgem in June 2017 to encourage them to implement a “safeguard tariff”. Ofgem are currently consulting on how to take action. The Industrial Strategy Green Paper, published in January 2017, promised an independent energy review to assess the affordability of energy and to inform a roadmap of energy priorities in future. This review was launched in August 2017, under the leadership of Professor Dieter Helm, and will report back at the end of October 2017.

During her speech to the Conservative party conference on 4 October 2017, the Prime Minister Theresa May announced that the Government would publish a Draft Bill to put a price cap on energy bills. There has been a mixed response to this announcement. Energy UK, the industry trade body, said the cap could interfere with competition and instead advocated energy efficiency measures. Whereas, Citizens advice welcomed the plans as a potential “solution to runaway energy costs.” 

Commons Briefing papers CBP-8081

Author: Suzanna Hinson

Topics: Companies, Consumers, Energy, Fuel poverty, Utilities

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