Ofgem – Price Review
5 million vulnerable customers will be affected by Ofgem’s price cap increase on their safeguard tariff, including over 1 million customers who fall under the new eligibility criteria. The hike, due to take place on April 1st, will shift the average dual fuel bill from £1,031 to £1,089 and is said to be due to pricier wholesale energy and policy costs supporting low carbon electricity generation.
The safeguard tariff protects vulnerable consumers from overpaying. However, the new eligibility criteria, set by Ofgem in December, now includes those who are on their provider’s standard variable tariff and get the Warm Home Discount.
These new tariff customers will initially save around £115 a year, but these savings will likely fall to around £66 when the cap is increased. Ofgem suggests that despite the hike, customers are still better off under the safeguard tariff which prevents suppliers from overcharging.
The cap increase will concern those already struggling to pay their energy bills. Recent research undertaken by National Energy Action estimates that over 1 million people are likely to go without essentials in order to heat their homes this winter.
So, what are the impacts of this hike likely to be?
Firstly, vulnerable customers will immediately feel under greater financial pressure. This pressure may see an increase in customers seeking help from welfare advice services, debt charities and applying for more energy grants such as the Scottish Power Hardship Fund and the British Gas Energy Trust.
Unfortunately, for those who are unaware of these services or feel uncomfortable reaching out, more drastic measures may be taken. Energy is a priority bill, meaning other debts may increase or be put on the back-burner. Credit cards, personal loans and overdrafts may be neglected which can cause credit ratings to plummet and rack up hefty charges and fees.
However, there could some positive impacts of this cap increase. Alex Neill, MD of Home Products and Services for Which? suggests that “an average saving of just £66 on people’s energy bills makes the safeguard tariff far from cheapest. Anyone overpaying on a poor-value tariff should look to switch to a better deal immediately, as they may save up to £305 a year.”
Healthy competition is what makes markets thrive. Encouraging consumers to seek advice on switching may mean that suppliers are forced to strive for maximum operational efficiency. This will make costs more competitive than ever. However, it’s important to check that if a consumer currently receives Warm Home Discount, their new supplier also runs this scheme.
What should we do moving forward?
Wholesale costs of energy are out of suppliers’ control. However, the information they give to their customers isn’t. In light of this increased price cap, we urge energy companies to revisit their affordability tariffs, schemes and processes and actively inform their most vulnerable customers of their options. This will ensure those who need the most help, can access it.