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Ofgem to introduce price cap for pre-pay energy meters

Ofgem has said four million pre-pay energy customers will be protected by an interim price cap from next April.

The cap will save “vulnerable” households using pre-pay energy meters about £75 a year, the regulator said.

Ofgem said it would also work with suppliers to help “disengaged” customers on “expensive standard variable tariffs” to shop around more.

But one energy company boss said the proposals put too much onus on the customer and did not go far enough.

The managing director of First Utility, Ed Kamm, said: “Ofgem itself admits that consumers who are already engaged in the market will see the first benefits.

“We are in real danger of continuing to fuel a ‘tale of two markets’ – helping those who already shop around and doing little to properly help those who are continuing to pay much more than they need to or should,” he added.

However, Ofgem said the proposals were an “opportunity to deliver a more competitive, fairer energy market for all consumers”.

It welcomed proposals published last month by the Competition and Markets Authority (CMA) aimed at reforming the energy market.

Ofgem chief executive Dermot Nolan said the CMA’s final report was a watershed moment for both the industry and consumers and pointed the way to a “fairer and more competitive future”.

“I call on energy companies and consumer groups to seize this opportunity,” he said.

‘More effective’

According to the CMA’s two-year investigation, two-thirds of UK households were paying “over the odds” for their energy compared with those who have switched to a different tariff.

To encourage more switching, Ofgem planned to trial “more effective prompts” on customers’ bills to encourage them to compare different tariffs.

However, Ofgem said it would not be capping standard variable energy tariffs.

Mr Nolan told BBC Radio 4’s Today programme the CMA had decided that capping standard tariffs was not in the best interests of customers.

Instead, the CMA had proposed “a series of remedies”, said Mr Nolan, adding they would make the market fairer and encourage customers to switch energy suppliers.

Ofgem believed encouraging competition was the best protection for consumers, he added, and said switching rates had increased over the last year.

Huge challenge

Consumer organisation Which? welcomed Ofgem’s report.

“It’s good to see Ofgem swiftly taking forward the CMA’s recommendations to increase competition and reach people who are not engaged in the market,” said Alex Neill, Which? director of policy and campaigns.

“The regulator faces a huge challenge in implementing all of these recommendations in a way that stimulates competition to deliver better outcomes for many more consumers. For this to happen the industry will need to commit to working with the regulator to ensure people get a fairer deal on their energy,” he added.

One of the “Big Six” energy suppliers, EDF Energy, said it supported “the implementation of the CMA’s proposed remedies without delay, so that customers can continue to benefit fully from competition and innovation”.

However, critics have said it is impractical for most people to check every few weeks whether they were getting the best possible deal.

“It can be difficult – people don’t have the time to do these things, but unfortunately, that’s the nature of a competitive market,” the director of energy supply at industry body Energy UK, Audrey Gallagher, told the BBC.

“I think this industry is doing as much as it can to try and reassure consumers that they can switch. There’s information about the cheapest deals available currently on every bill,” she added.