An energy price cap designed to end expensive tariffs could actually end up increasing bills, experts say.
The new cap, the details of which are due to be published next week, will reduce the cost of the most expensive tariffs, paid by loyal customers, but will dampen competition and could put the smaller firms that offer the cheapest deals out of business.
The cap is designed to put an end to allegedly excessive prices and stop energy firms punishing loyal customers on standard variable tariffs, which are the most expensive. It is expected to save around 12 million customers £100 a year.
At the moment the average standard tariff from the big six suppliers costs £1,131 a year. The cheapest deal, from Iresa Energy, costs £820, based on average annual usage for gas and electricity combined. This is a difference of £311.
Mark Todd, co-founder of price comparison service energyhelpline, suggested that new price cap would put pressure on the finances of suppliers, particularly the smaller ones, which tend to offer the most competitive tariffs.
He said such cheap deals could start to disappear, giving larger suppliers a “stronger grip on the market”. He said that if Ofgem, the regulator, set the cap at a low price it might “knock many of the little guys out of business”. Suppliers could also begin to push prices up to, or just below, the cap.