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Domestic Gas and Electricity (Tariff Cap) Bill: Briefing for Lords Stages

Published Tuesday, May 15, 2018

This House of Lords Library Briefing has been prepared in advance of the second reading in the House of Lords of the Domestic Gas and Electricity (Tariff Cap) Bill on 22 May 2018.

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The Domestic Gas and Electricity (Tariff Cap) Bill is a government bill that proposes a temporary price cap on certain energy tariffs for domestic consumers in Great Britain. It completed its stages in the House of Commons on 30 April 2018. The Bill was introduced in the House of Lords on 1 May 2018 and is due to have its second reading on 22 May 2018.

The Bill follows a 2016 report by the Competition and Markets Authority (CMA) which found that the large energy suppliers had market power over their customers, and as a result, consumers paid in total around £2 billion per year more for their energy in 2015 than in a competitive market. The sector’s regulator, the Office of Gas and Electricity Markets (Ofgem), estimated possible average per household savings of £300 in 2017.

The cap covers all domestic ‘standard variable’ and ‘default’ tariffs. Ofgem has stated that it needs five months to implement a cap, and the Government has said that it expects the cap to be in place by the winter of 2018/19. It would apply until the end of 2020, but can be extended yearly as far as 2023 under certain conditions.

The Bill has 13 clauses. Clauses 1 to 3 define the cap, its conditions and exemptions. Clauses 4 to 5 specify the procedures which Ofgem must follow in introducing or modifying the cap. Clauses 6 to 9 require Ofgem regularly to review the level of the cap, and towards the end of the initial period, to review market conditions more widely. They also specify the circumstances in which the cap can be extended or terminated, and allow Ofgem to impose further conditions on suppliers once it has ceased to operate. Clauses 10 to 13 specify consequential changes, define terms and provide information on the Bill’s geographical reach, date of implementation and short title.

The Bill has cross-party support and completed its House of Commons stages unamended. However, there were concerns from some MPs that it may harm competition, while others suggested that the form of the cap is not optimal. Regular themes in the House of Commons debates included: how best to protect vulnerable consumers; ensuring that the cap should be a temporary measure while other steps were taken to promote competition in the market; how to measure what “effective competition” in the industry is; and whether there should be a right of appeal for consumers and suppliers against the cap.

Lords Library notes LLN-2018-0054

Author: Chris Smith

Topics: Companies, Competition, Consumers, Fuel poverty, Regulation, Renewable energy, Utilities

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