Cap will come into effect this winter unless one of the big six firms issues legal challenge

This article is more than 2 years old

This article is more than 2 years old

The government has reached a compromise with Labour over the legislation underpinning the new energy price cap, quashing fears the flagship policy would be delayed.

A House of Lords amendment would have introduced a permanent relative price cap – a limit on the gap between energy firms’ most expensive and cheapest tariffs – after the absolute cap ends.



Such an indefinite cap would have been unacceptable to many Tory MPs.



But after negotiations between energy minister Claire Perry and the the opposition that went on until late on Monday, an alternative was agreed that would oblige the energy regulator Ofgem to carry out a review before the absolute cap ends.

That review will have to examine whether households face an excessive gap between expensive default tariffs and cheaper fixed rates, after the cap is lifted in 2020, or in 2023 if competition is deemed not to be working.

The government amendment also requires Ofgem to explore whether vulnerable customers need further protection after the cap.

Alan Whitehead, Labour’s shadow energy minister, said: “After long delays the government is finally bringing Labour’s energy price cap idea into law.”

John Penrose, a Conservative MP who had backed a relative cap, said the compromise went far enough to satisfy him.



“This last-ditch change finally addresses the central ‘tease and squeeze’ rip-off that’s sneakily leaving people on ultra-high default tariffs, and was the original reason for introducing the bill in the first place.

“It means that, if an absolute price cap doesn’t fix the problem properly, Ofgem can’t just ignore it like they did before.”

The comparison site uSwitch said the agreement was a more sensible approach than a relative cap.

The victory for ministers means there should be no delay to the cap coming into effect this winter, unless one of the big six energy suppliers launches a legal challenge against the government.

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Perry recently wrote to the firms to warn them against such a course of action, which she said would risk “damaging the reputation of the whole sector”.

In her letter, she told bosses: “The government will strongly condemn any efforts to frustrate the process of putting the cap in place.”

The legislation underpinning the price cap is not expected to be affected by the prospect of an early parliamentary recess on Thursday, government sources said, because the bill should be passed by the Commons late on Wednesday afternoon.