Energy customers will save on average £75 a year under plans to cap rip-off gas and electricity tariffs at £1,136, the energy watchdog has announced.
Ofgem says more than 11 million households will save a combined £1 billion a year, with customers on the most expensive default standard variable tariffs saving more than £120 a year when the cap comes into effect.
It has proposed to set the cap for the typical dual fuel customer paying by direct debit at £1,136 a year, forcing suppliers to cut prices to that level or below.
The regulator, which was given legal powers by the Government in July to introduce the cap, hopes to have the measures in place by the end of the year.
How much will the new price cap save you?
Dermot Nolan, chief executive of Ofgem, said: “Once the price cap is in place, all households in Great Britain covered by the cap will be protected from being overcharged for their energy.
Consumers can have confidence that falls in energy costs will be passed on to them and if costs increase, Ofgem will ensure that any rise will be due to genuine increases in energy costs rather than supplier profiteering.”
Ofgem said it will update on the level of the cap in April and October every year to reflect wholesale energy prices and costs of supplying, which it said would ensure households on standard variable tariffs “will always pay a fair price for their energy”.
Stephen Murray, energy expert at MoneySuperMarket, said households would be better off switching to save money than relying on the cap to give them a fair deal.
He said: “Don’t get lulled into a false sense of security by the political soundbites – the easiest way to bring down your bills is to go online and switch now to a competitive fixed-rate tariff.”
Greg Clark, the Business and Energy Secretary, said: “We have always been clear and determined that the injustice found by the CMA that loyal customers were being exploited must end.
“This Government is delivering on its promise to end that injustice and protect households across the country from unjustified price rises.”
He added the details of the cap outlined by Ofgem give households confidence that “when energy costs fall their bills will too”.
Ofgem has already capped bills through its safeguard tariff for 4 million pre-payment meter households, which was extended in February to 1 million more vulnerable consumers on poor-value default deals who already received the Government’s Warm Home Discount.
Industry group Energy UK said the cap will pose a “significant challenge” to many suppliers.
Chief executive Lawrence Slade said: “There are over 70 suppliers in the energy market who will now be assessing how this impacts their individual business.
“It is crucial that the cap ensures we have an investible energy sector where efficient and financially robust companies can trade, and innovation and engagement can continue to flourish and deliver benefits for consumers.”