Government price cap to limit energy bills for 15m homes

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The government has yet to clarify whether the cap will be an absolute cap - meaning consumers can not be charged more than a set amount - or a relative cap, whereby the standard variable tariff must not be more expensive relative to fixed tariffs.

Business and energy secretary Greg Clark adds: "People who show loyalty to well-known brands are paying hundreds of pounds a year too much on standard variable tariffs and I am determined that this practice should end".

The Government's plan to provide price protection to all households on default deals will reassure them that the price they pay reflects the underlying costs of supplying their energy.

The draft bill published on Thursday said the price cap would initially last until 2020, with the potential to be extended by up to three years if needed.

The government revealed on Thursday that the cap will be an absolute rather than relative one, where the gap between a supplier's cheapest and most expensive tariff is restricted.

Britain's energy market is dominated by the so-called big six providers - Centrica's British Gas, SSE, Iberdrola's Scottish Power, Innogy's npower, E.ON and EDF Energy, which account for about 85 percent of the retail electricity market.

FILE PHOTO: A gas cooker is seen in Boroughbridge, Britain, November 13, 2012.

About two-thirds of households will see their energy bills capped under draft legislation to be set out by the government on Thursday, as Theresa May vowed to fix what she called a "broken" market.

Around two-thirds of all energy customers in the United Kingdom are now on these variable tariffs.

In the meantime, suppliers must step up efforts to get more of their customers on default tariffs onto better value deals.

To help with this, Ofgem is introducing new rules today to allow suppliers to roll customers coming to the end of their contracts onto another fixed deal instead of a poor value standard variable tariff.

The leftist opposition Labour Party, which has long advocated intervention in energy markets, performed better than expected at a June snap election, depriving May of an outright majority in parliament.

But the price cap is unlikely to take effect before winter.