Theresa May’s energy price cap has failed to tackle the problem of electricity rip-offs because she introduced the “wrong kind” of limit, according to the ex minister who led the Tory campaign for action.
John Penrose said Mrs May’s cap on the cost of electricity and gas had left the problem “just as bad today as it was before the cap began” after the former prime minister implemented a “compromise” that MPs had warned could prove ineffective.
In an article for The Telegraph, Mr Penrose, a former Cabinet Office minister, pointed out that the “gap” between default tariffs and the cheapest deals available to those who switched suppliers, had risen to £300 – a similar level to before the cap was implemented last year.
Mr Penrose said: “This can’t be allowed to go on.”
He is calling for the current cap on overall bills to be replaced with a £150 limit on the gap between default tariffs and the cheapest versions available.
Mrs May introduced the absolute cap on prices following a campaign led by Mr Penrose, which came after Ed Miliband promised a cap during the 2015 election.
But former Tory ministers had warned Mrs May that her proposals for an “absolute” cap on bills would “distort” the energy market and could fail to tackle the problem of high prices because it would leave Ofgem, the energy regulator, in the position of attempting to predict the future cost of wholesale gas.
Instead, the MPs had called on Mrs May change the Energy Price Cap Bill to introduce a “relative” cap, which, rather than setting an overall cap, would introduce a maximum mark-up between each energy firm’s best deal and the standard variable or default tariff paid by most customers.
Mr Penrose states: “The compromise has turned out to be fatal.
“We created the wrong kind of price cap. It’s set by the regulators at Ofgem every six months and, as I argued at the time, they’re bound to get it wrong … because it’s impossible to know what the international wholesale price of gas will be in six minutes from now, let alone six weeks or six months in the future.”
He adds: “The rip-off is the size of the gap between the best prices which you or I could have got if we remembered to switch to a different suppler, and the price of the default tariff that most of us pay. And the rip off gap is just as bad today as it was before the cap began.
“Before the cap, most of us were paying £300 or so more than if we’d switched to a better deal. Ofgem’s first go got it down to about £170. Then their dreadful second attempt pushed it close to £400, and the third cap got us back to just over £300 again.”
Changing the current regime to cap the gap between default tariffs and the cheapest versions available would ensure that customers who failed to switch suppliers would “know we were paying a bit more, but not too much,” Mr Penrose states.
He states that a new £150 cap would represent a saving of £150 on the bills currently being paid by the average consumer on a default tariff.
A spokesman for the business and energy department added: “Independent experts and the regulator agree that changing from an absolute cap could increase prices for many consumers and limit competition.”
An Ofgem spokesman insisted the existing cap had “protected 11 million people from paying an unfair price for energy”. He added: “We would encourage customers to continue to shop around and switch to cheaper fixed term deals to save even more money on their bills.”