Energy bills to be capped in new year

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The new energy price cap will come into force on 1 January, saving 11 million customers an average of £76 a year on their gas and electricity bills.

Regulator Ofgem has set the final level of the cap at £1,137 a year for a typical dual fuel customer paying their bill by direct debit.

It means suppliers will have to cut the price of their default tariffs to the level of the cap or below it.

The cap level will be updated in April and October every year.

Households in England, Scotland and Wales on default tariffs should be better off after the cap is introduced. Consumers in Northern Ireland have a separate energy regulator and already have a price cap.

More than half of all households in Britain are on default tariffs – normally a standard variable deal – because they have never switched or have not done so recently.

How much they will save will depend on how much energy they use, which tariff they are on, if they have both gas and electricity and how they pay for their energy.

People who use a typical amount of gas and electricity will save about £76 on average, while customers on the most expensive tariffs will save about £120.

Dermot Nolan, Ofgem chief executive, said: “The price cap will ensure that whether energy costs rise or fall, suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes.”

Citizens Advice chief executive Gillian Guy said: “This price cap will finally offer some much-needed protection for loyal households on default tariffs, who have been exploited for too long.

“While the cap will mean that people pay a fairer price, it will not be the best deal on the market. By shopping around and changing tariff or supplier, people are likely to be able to make much greater savings on their energy bills.

Wholesale energy costs have gone up significantly over the past year and if this continues, it is likely that, in February, Ofgem will announce a rise in the cap level for April.

Stephen Murray, energy expert at price comparison website MoneySuperMarket, said: “That means we could be looking at three months’ gain and then 12 to 18 months of long-term pain for people who do nothing and let the regulator control their bills.”

Ofgem said that customers could be confident that any rise in the cap “would only reflect changes in the actual costs of providing the gas and electricity they use rather than supplier profiteering”.