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News Article

Prepaid energy tariffs to be capped for low-income households

Published 11 March 2016 by

Millions of low-income households could see their energy bills cut under plans to shake up the gas and electricity market. The Competition and Markets Authority (CMA) has revealed plans to cap prices for households with prepayment meters until 2020.

Energy suppliers would be made to share their customer databases with their rivals as well, in order to encourage more customers to switch suppliers and find a better deal.

Report findings

These proposals follow an 18-month investigation into the energy market sparked by the CMA’s belief that customers of the big six energy companies (British Gas, EDF Energy, E.ON, Npower, Scottish Power and SSE) are being overcharged, by an estimated £1.7 billion a year.

Under these plans, energy suppliers will be required to place all of their prepayment customers onto a new temporary ‘safeguard’ tariff until 2020. The CMA has set the tariff at a reduction of 8%, meaning that customers could save around £80 or £90 a year on their prepaid energy. It’s hoped that customers could see these savings by April 2017.

The lack of competition in the market was a focus of the report as well. The CMA estimates that 70% of all customers are on their supplier’s standard tariff and could save around £300-£400 a year if they were to move.

To encourage competition and better deals, the CMA will make the details of those who do not shop around for the best price available to rival suppliers through a database controlled by energy regulator Ofgem. Roger Witcomb, chairman of the CMA’s investigation, said that safeguards would be put in place to make sure that people are not “bombarded with junk mail”.

Price comparison websites will also be given access to more customer data, including meter numbers to help customers find better deals. However, the way that deals are shown to customers on these sites needs to become more transparent, the CMA stated.

What this means for you

At the moment these plans won’t affect you too much, as the CMA still have a final report to deliver by June and it’s unlikely that any action will be taken before then.

In the long-term though, these plans could help you save on your energy bills. This is particularly likely to be the case if you have a prepaid meter in your home, as it’s proposed that there will be controls placed on what you spend. For those on a traditional energy tariff, these plans should open up competition between energy suppliers and help you to find a better deal.

You could also find a cheaper rate if you tend to stick with the same energy supplier as under the new proposals, you’ll be encouraged to switch by suppliers who send you their deals.