Pre-pay and vulnerable energy customers to see bills rise as Ofgem hikes price cap

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More than five million households are to see their energy bills rise by around £57 a year after the regulator announced it was hiking a price cap aimed at protecting vulnerable and pre-payment customers.

Ofgem said it was increasing the level of its safeguard tariff from April 1, meaning the average dual fuel bill will rise from £1,031 to £1,089 a year due to higher gas and electricity costs.

It comes after the energy watchdog extended its safeguard tariff to almost one million vulnerable customers on February 2, taking the total number of households protected by the energy tariff to more than 5 million.

Ofgem, which introduced the safeguard tariff in April last year, insisted that households on the tariff would still be better off despite the price rise.

It said their bills – which used to be among the highest in the market – would still be around £35 lower than the current standard variable tariff paid by direct debit customers.

Dermot Nolan, chief executive of Ofgem, said: “Protecting vulnerable customers is a priority for Ofgem.

“That’s why we have extended the prepayment safeguard tariff to almost 1 million vulnerable households, which will help deliver a fairer, smarter and more competitive market for all consumers.

“Even when energy costs rise, people on the worst deals are better off under the safeguard tariff as they can be sure that they are not overpaying for their energy and any rise is justified.”

Ofgem updates the safeguard tariff every six months based on the estimated cost of supplying energy and said the increase follows rises in wholesale gas and electricity costs as well as increased government policy costs.

Last week’s move saw the tariff extended to almost one million people who are on their provider’s standard variable tariff (SVT) and get the Warm Home Discount.

These customers will initially make savings of around £115 a year on average because suppliers have to cut their prices to below the level of the safeguard tariff cap.

But these savings will fall to around £66 a year from April when the cap is increased.

The tariff was initially introduced solely to households who pre-pay for their energy, mostly with traditional coin or token-operated pre-payment meters.

It is designed to protect customers on the worst-value deals from being charged too much by suppliers and to ensure any price increase is justified by rises in underlying costs.

The tariff was one of the Competition and Markets Authority’s (CMA) remedies stemming from its two-year investigation into the energy market.

Mr Nolan said Ofgem was still working with the Government to introduce a cap on SVTs, after the CMA found that customers of the Big Six energy suppliers on standard variable and default tariffs are paying £1.4 billion a year more than they need to.

He said: “Our aim is to protect those who do not switch, while making it easier for those who do to get a better deal.”

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