The government has vowed to keep a lid on the energy bills of 15m homes until at least the end of next year after agreeing to extend the energy price cap beyond 2020.
Under legislation, ministers could have abandoned the cap on standard variable energy tariffs – brought in at the start of 2019 to prevent “rip-off” energy deals – as soon as the end of this year.
But government officials and the regulator have agreed to extend the cap after households saved £1bn last year, or between £75 to £100 a year for the average home using standard dual fuel energy tariff.
Alok Sharma, the business and energy secretary, said the cap had been vital in ensuring customers did not pay too much on their bills, “which is why we are keeping it in place for at least another year”.
He added: “Switching energy supplier to find the best value deals is still the best way to save on bills, but this government is determined to make sure all customers are treated fairly and get the protection they deserve.”
The energy cap legislation tasked the industry regulator to set a fair cap on standard tariff rates every six months to reflect the changing cost of supplying energy at the beginning of 2019.
Ofgem said in August that the cap for this winter would fall by an average of £84 a year for 11m households, and by £94 a year for another 4m homes using an energy pre-payment meter.
The cap was first put forward in 2013 by the former Labour leader Ed Miliband to stop major energy companies from profiteering at the expense of loyal customers using standard variable energy deals rather than shopping around for cheaper fixed-rate tariffs.
Major energy suppliers lobbied the Conservative government against similar plans, and are understood to have called for an end to the cap as soon as the legislation allowed at the end of 2020. It could remain in place until the end of 2023 depending on whether the energy market evolves to become more competitive and fairer for customers.
Jonathan Brearley, the chief executive of Ofgem, said the government’s decision to extend the price cap beyond 2020 means that 15 million households “will continue to be protected under the price cap and will pay a fair price for their energy in 2021”.
The regulator set out new rules to protect vulnerable households through the coronavirus crisis, which call on energy suppliers to offer customers who are struggling to top up their prepayment meters or pay their bills emergency meter credit or payment plans this winter.
“Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy system,” Brearley added.
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