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PM's promised energy price cap will expire in 2020

The Prime Minister’s cap on energy prices to protect households from rip-off bills will be a “temporary measure”, it has been revealed.

In a statement to financial markets, ministers revealed their plans to publish a draft law later on Thursday to cap energy prices for those on a standard variable tariff and other default tariffs.

But the law will expire in 2020, it was disclosed.

“The cap would be a temporary measure, having effect initially until the end of 2020,” the statement added.

“The need for it would be kept under review, and extensions could be made, on the advice of Ofgem, up to the end of 2023 at the latest.”

If passed, the proposed legislation would force regulator Ofgem to impose an “absolute cap” as soon as possible.

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A pledge to change the law was included in the Conservative manifesto before June’s General Election, but was dropped from the subsequent Queen’s Speech after some Tory MPs claimed it was state intervention and anti-free market.

But after 192 MPs of all parties wrote to the Prime Minister in September complaining that poorer customers were being preyed on by energy firms, Mrs May revived the plan and backed a price cap in her recent Tory conference speech.

Suppliers reacted with fury as billions of pounds were wiped off the value of their shares after the Prime Minister’s pledge.

The draft bill putting a cap on tariffs will be scrutinised by the Business, Energy and Industrial Strategy Select Committee of MPs, in a move the Government says will help build a cross-party consensus.

Under the bill, the regulator Ofgem would bring in a price cap on the poor value tariffs that exploit customer loyalty, which would protect around two-thirds of households and 18 million customer accounts, according to the Government.

“I have been clear that our broken energy market has to change,” the Prime Minister said.

“It has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much.

“Today’s publication of draft legislation is a vital step towards fixing that, and in offering crucial peace of mind for ordinary working families all over the country.”

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The Competition and Markets Authority found that customers of the so-called ‘big six’ energy suppliers on standard variable and default energy tariffs are paying £1.4bn a year more than they need.

Ofgem this week announced it is extending its existing price cap for vulnerable consumers and the Government says five million households will now, for the first time, benefit from protection against rip-off energy bills this winter.

Four million of those are on pre-payment meters.

The regulator will, from February, protect a further one million households who receive the Warm Home Discount.

The Government says it welcomes Ofgem’s move, but claims the regulator could go further to protect everyone on default tariffs from unfair practices.

Labour’s shadow business secretary, Rebecca Long-Bailey, described an energy price cap as a “suitable temporary measure” but claimed “the market as a whole needs to be reformed”.

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Challenging the Government to meet her party’s plans for a cap of £1,000 on the average household energy bill, Ms Long-Bailey told Sky News: “Our manifesto set out we would introduce a price cap, similar to the Conservatives, but in the longer term we’d reform the market.

“We’d set up locally owned, regional energy companies to rival the big six.

“We’d also look at reforming the overall energy market as a whole, in terms of gaining more transparency over the determination of wholesale prices and also the way the big six and other energy companies publish their prices.”

Tory backbencher John Penrose, who organised September’s letter from MPs to the Prime Minister, expressed concerns about the Government’s proposal for an “absolute cap”.

He said: “A temporary relative price cap puts the customer in charge, so energy firms compete to offer the best, most creative and attractive deals.

“An absolute cap would throttle competition, be out of date as soon as the wholesale price of gas goes up or down, and energy firms would spend more time lunching their regulators than delighting their customers.”

There has also been a guarded welcome for the draft bill from consumer organisation Which.

“The Government must guard against any unintended consequences that undermine customer service and push up prices as a whole,” said Alex Neill, its managing director of home products and services.

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