How will the cap work?
The cap will be in place from the end of 2018 and the level at which it is set will be reviewed after three months, and then at least every six months after this – while it is in place.
It will continue until 2020 when Ofgem will recommend on annual basis if it should continue, up to 2023.
It will be absolute, meaning it won’t vary between suppliers.
What is a standard variable tariff?
An SVT is an energy supplier’s ‘default’ tariff. The costs are variable, so the rate you pay can go up or down depending on wholesale energy costs – what suppliers pay for gas and electricity – and there are no exit fees or a fixed end-date. If you’re on a fixed tariff and your deal ends, you’ll be rolled automatically on to your supplier’s SVT if you do nothing.
SVTs are typically more expensive than other plans a supplier can offer, and this year we’ve seen a raft of price hikes – with Scottish Power becoming the latest big six firm to hike its SVT for the second time last month.
Currently, the average big six standard tariff – which 11 million households are still on – stands at an average £1,221/year on typical use. In comparison, the cheapest energy tariff costs a typical £859/year, over £360 cheaper.
This means a typical household on one of the big six standard tariffs could save £85/year on average when the price cap takes effect.
My prices are already capped – does this effect me?
Prices are already capped for those on prepayment meters and vulnerable customers.
In April 2017, Ofgem introduced a price cap for everyone on prepay tariffs. This remains separate to the cap on standard variable tariffs, so you won’t be affected by this. However, the regulator has recently announced it is increasing the level of the prepay cap, so your bills could soon be going up.
In February 2018, this prepay cap was extended to protect an additional one million vulnerable consumers who are on poor value standard variable tariffs and receive the Government’s “Warm Home Discount”.
It’s expected that these vulnerable customers will be brought under the new price cap for standard variable customers, so from December, your prices may change again.