The Energy Price Cap

Today the government is extending the Energy Price Cap until the end of 2021 – meaning that around 11 million UK households will make savings of up to £100.

  • 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.
     
  • That’s why the Energy Price Cap is being extended for another year – continuing to protect around 11 million UK households on standard variable and default energy tariffs from being overcharged. This will help households save between £75 and £100 a year on their fuel bills.
     
  • This will provide more protection to energy customers – especially the elderly and most vulnerable – to ensure that they do not pay more than they need to on their bills.
I believe that governments need to be careful about price caps or other forms of government intervention in the market, though this one is a lot less potentially damaging than the "Energy Price Freeze" proposed by "Red Ed" Miliband a couple of years before Theresa May came up with the Energy Price Cap. 

Over the two years after Miliband proposed a price freeze on gas and electricity the prices actually dropped substantially - so if he had been Prime Minister and actually introduced his policy it would have cost householders many millions of pounds.

Unlike a price freeze, a price cap does not restrict the ability of suppliers to reduce prices if market conditions make that a sensible thing to do.

Where suppliers, particularly in a utility market with structural limits on competition, have enormous market power, and especially where they follow policies which penalise "loyal" customers who don't shop around, the arguments for a degree of intervention are much greater. The energy market is such a case.

Hence although such policies do need to be carefully monitored to ensure we do not fall foul of the law of unintended consequences, I think extending the Energy price cap is an appropriate policy to protect vulnerable pensioners and other vulnerable groups during the present pandemic.

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