Energy price cap costing households ‘bills that are well above historic levels’ which is ‘driving inflation’

A new report has revealed that Ofgem’s energy price cap is “driving inflation” and is stopping customers from accessing lower tariffs.

The energy price cap should be abolished as it has gone “far beyond” it’s purpose in providing protection for millions of households which has now become a “de facto regulated market price,” according to the centre-right think tank the Centre for Policy Studies (CPS).

Almost all tariffs have priced either at or below the capped the level for nearly two years and this probably will not change in the near future.

CPS energy and environment researcher Dillon Smith said that this means the government are by de facto setting the market price for energy which therefore is preventing customers from being able to find a better deal.

Smith added, “Contrary to its original intent, the energy crisis has transformed the Energy Price Cap from a genuine cap to a state price control for virtually the entire market.

“Utility firms are being actively discouraged from offering new, more affordable deals to customers because of state interventions in the energy market. Competition has all but disappeared, meaning prices are being kept high, further contributing to measured inflation.

“Government needs to rethink the price cap and deliver choice and competition for consumers. This should come alongside moves to introduce stronger protections against fuel poverty such as a social tariff.”

Craig Lowrey, principal consultant at analysts Cornwall Insight, said: “Despite recent reductions in the price cap, households are still facing bills that are well above historic levels. This has raised questions about the cap’s purpose, its efficacy in safeguarding consumers, and its impact on tariff competition.

“In light of this, it becomes crucial to explore alternative measures that can better protect consumers, promote fair competition, and ensure affordable and transparent energy pricing for all.

“The exploration of options such as social tariffs, energy efficiency initiatives, and various other avenues should be prioritised.

“Any reductions to the price cap should not diminish the sense of urgency in implementing necessary changes. The protection of vulnerable households from high energy bills remains a pressing issue that requires immediate attention.”

Simon Francis, co-ordinator of the End Fuel Poverty Coalition, which is part of the Warm This Winter campaign, said: “This report shines a light on the murky depths of Britain’s broken energy system. Without fundamental overhaul of the energy grid and energy tariffs, households will continue to lose out while suppliers will profit.

“Energy supplier profits predicted for the next 12 months could easily cover the cost of a ‘help to repay’ energy debt scheme and leave quarter of a billion pounds left over.

“But, in addition to network reform and immediate support, we also need to see urgent and sustained action to reduce our reliance on high levels of energy consumption, such as improving the energy efficiency of homes, driving an increase in cheap renewables, and a move away from the fossil fuel profiteers of the past.”

An Energy UK spokesman said: “As Ofgem recently stated, suppliers have lost £4 billion over the last four years – something which this analysis appears to have overlooked. So it’s clear that the theoretical margin allowed in the price cap does not equate to profits made in reality – showing the flaws in basing future projections on that.

“Ofgem has also stated that, while it expects many suppliers to return to making profits this year, this must be seen in the context of these recent losses.

“It’s also worth stressing that the vast majority of customers are on price-capped tariffs, which Ofgem sets to ensure that customers pay a fair price reflecting the costs of supplying energy – and this is unlikely to change significantly over the next few months.”