LONDON (Reuters) - A British price cap on the most widely used domestic energy tariffs will come into force on Jan. 1, 2019, saving households a total of around 1 billion pounds a year, energy regulator Ofgem said on Tuesday.
The regulator was tasked by parliament with setting a cap after a committee of lawmakers called Britain’s energy market “broken”. Prime Minister Theresa May said the energy tariffs were a “rip-off”.
The cap, set at 1,137 pounds per year for a dual fuel bill - gas and electricity - is in line with an indicative level announced in September.
It will give 11 million customers cheaper prices and save a typical customer on the most expensive tariff up to 120 pounds a year, with the average saving expected to be 76 pounds a year, Ofgem said.
The level of the temporary cap will be updated in April and October each year to reflect the latest costs for suppliers such as wholesale energy prices and policy costs, and is expected to run until 2023.
Average fuel bills fell for UK households last year, but the government is still concerned by the large disparity in prices. Ofgem said the fall was due to factors such as lower wholesale energy prices and lower margins for the suppliers.
The difference between the average standard variable price and the cheapest tariff offered by Britain’s big six energy suppliers was 320 pounds between June 2017 and June 2018, an Ofgem report in October showed.
All of the big six suppliers have increased their prices this year, and since a law to cap prices was introduced to parliament in February.
“In the past few months loyal energy customers have continued to be hit by unjustified price rises on their already rip-off tariffs,” Britain’s energy and clean growth minister Claire Perry said in a statement.
“Today’s final cap level brings greater fairness to energy prices,” she said.
Some energy suppliers have warned the price cap could hamper competition in Britain’s energy market, which has around 70 suppliers.
“It is crucial that the cap doesn’t halt this growth of competition and choice and still enables energy companies to both invest and attract investment,” Lawrence Slade, chief executive of industry group Energy UK said in a statement.
Analysts have also warned rising wholesale prices mean Ofgem is expected to raise the cap next April.
Reporting by Susanna Twidale, editing by Louise Heavens and Jason Neely