It all started so well. Almost every Member of Parliament agreed that the ‘Big Six’ energy firms had been ripping off their most loyal customers for years, and Something Must Be Done. What could possibly go wrong?
So hopes were sky-high when, just over a year ago, Parliament passed a law to introduce a temporary price cap. Temporary because the regulator Ofgem was, finally, getting its act together and reckoned it could fix the underlying problems if we gave it a bit of time. And a cap to deal with the price of the particular kind of energy deals which the Big 6 energy firms had been using to rip off a majority of British households for years.
The rip-off was a scandal. If you don’t know what kind of energy deal you’re currently getting, or you forgot to switch last time your deal came up for renewal, or simply haven’t got time because you’re so busy, then you’re on something called a ‘default tariff’. It’s the deal they give you when you aren’t paying attention and, before the price cap was introduced, it was absolutely terrible. All six big, established energy firms had got used to treating their best customers appallingly badly, roping them in with eye-catching deals and then stealthily marking up prices when the initial offer finished. They made their money from the gap between the price of the best deals and the marked-up default tariff which most people ended up paying. The bigger the gap, the bigger the rip-off.
So I started campaigning to ‘cap the gap’. And lots of other people agreed. Everyone from Theresa May through to MPs from the Labour Party and the SNP started signing up and, a few months later, the new law was triumphantly passed.
The problem was that, as anyone who’s ever served on a committee of any kind will tell you, getting things done takes compromise. And, in this case, 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. Not because they’re stupid or dishonest, but 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. And since that ever-moving international wholesale price is what dictates the cost of your and my gas or electricity each day, we’ve given the clever folk at Ofgem a completely impossible task.
And so, unsurprisingly, they’ve got it wrong. Their first go wasn’t bad, but the second was a stinker. And the third attempt, which started last autumn to take us through the chilly winter months, has taken us full circle; back to where we were in the bad old days before the cap was introduced.
Remember: 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.
In other words, we are no better off than before Ofgem got to work. The rip-off is just as bad today as it was before the cap was introduced. This can’t be allowed to go on.
The silly thing is, it didn’t have to be this way. All Ofgem has to do is to stop pretending they’ve got the only working crystal ball in creation, admit that they can’t forecast the wholesale price of gas better than anybody else, and ‘cap the gap’ instead.
Capping the gap would set a maximum markup which any energy firm could charge above their best deal. So if you or I ended up on their default tariff, we’d know we were paying a bit more, but not too much.
Ofgem should cap the gap at £150. That’s a saving of over £150 compared to what most of us are paying at the moment. It would mean we’d still save money if we switched to a different deal, but if we forgot it wouldn’t ruin us.
It’s a workable answer that’s ready to go. The only question is; will everybody have the courage to take it?