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The Domestic Gas and Electricity (Tariff Cap) Act 2018

Published Friday, August 17, 2018

The Tariff Cap Act 2018 requires the regulator Ofgem to impose a temporary, absolute cap on the price of standard variable and default electricity and gas tariffs.

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Following the privatisation of the energy market, prices for electricity and gas fell. From 2000 prices began to increase in real terms and although costs were more stable from 2008, in 2016 and 2017 many energy suppliers announced price increases. Ofgem, the energy regulator, estimate that many consumers do not switch suppliers to get better deals. As a result, in 2016 the Competition and Markets Authority estimated that customers were being overcharged £1.4 billion for their energy.

By the 2017 General Election, a form of energy price cap was in both the Labour and Conservative manifestos. Ofgem implemented a price cap for prepayment customers in April 2017, and extended this in February 2018 to make a safeguard tariff cap for customers on the Warm Homes Discount scheme, but said that a market-wide price cap required legislation.

During her speech to the Conservative party conference on 4 October, the Prime Minister Theresa May announced that the Government would publish a Draft Bill to put a price cap on energy bills. The Draft Domestic Gas and Electricity (Tariff Cap) Bill was published on 12 October 2017.

The Business, Energy and Industrial Strategy Committee undertook pre-legislative scrutiny of the Draft Bill and published their report on 13 February 2018. The Committee criticised Ofgem and the energy suppliers for failing customers. The Committee agreed with the short term, absolute tariff cap proposed in the draft Bill and suggested amendments, for example to close loopholes for Green tariffs and ensure the cap is reviewed every six months.

The Domestic Gas and Electricity (Tariff Cap) Bill had its First Reading on 26 February 2018. The Bill proposed a temporary, absolute cap on the price of standard variable and default tariffs that will be lifted by the end of 2020, although the Bill provides for it to continue until 2023 if conditions for effective market competition are not met.

Comment on the Bill is broadly split into three groups. Some MPs, small suppliers and consumer groups are in favour of an absolute cap, to protect consumers from overcharging. Some MPs and an energy supplier are in favour of a relative price cap, to prevent the alleged practice of offering cheap deals but then rolling customers onto expensive tariffs. Some MPs and large energy companies are opposed to the cap, saying it may harm competition.

The Bill passed the House of Commons stages without amendments. During the scrutiny by the House of Lords, the Bill was amended. The Commons replaced the Lords amendment with a Government amendment with cross party support. On 19 July 2018, the Bill received Royal Assent and became the Domestic Gas and Electricity (Tariff Cap) Act 2018.

Ofgem have said they will need five months to implement a cap and the Government want the cap in place for the winter of 2018/19.

Commons Briefing papers CBP-8242

Authors: Suzanna Hinson; Paul Bolton

Topics: Competition, Consumers, Energy, Regulation, Utilities

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