A proposed cap on British electricity and gas bills will be temporary, the government said on Thursday, as it published draft legislation that will lead to the biggest state intervention in the retail energy market since privatisation nearly 30 years ago.
The legislation will introduce a cap on expensive “standard variable tariffs” — the most common energy deal on the market, involving 15m of Britain’s 27m households.
The move comes after Theresa May, prime minister, promised to end “rip-off energy prices once and for all” at the Conservative party conference last week.
But in what appears to be a concession to free-market Tory MPs who oppose state intervention, the government said the cap will initially expire in 2020. It can be extended annually until 2023 if deemed necessary by the energy regulator.
Greg Clark, business secretary, insisted the government still wanted to “promote competition as the best driver of value and service for customers” but said it was prepared to act “where markets are not working for all consumers”.
The domestic energy market was a “clear example of this”, he added.
But his claim was met with a chorus of scepticism from Conservatve MPs, reflecting how the cap is not popular with some rightwing Tories.
“There are quite a lot of free marketeers in the cabinet who never liked the policy . . . they thought it reeked of reheated Ed Miliband-ism,” said one senior Conservative, referring to a pledge made in 2013 by the then Labour party leader to freeze energy prices.
Tory MPs lined up to question whether the cap would lead to unintended consequences after Mr Clark outlined the draft domestic gas and electricity (tariffs cap) bill to the Commons.
Power companies such as Centrica, owner of British Gas, have argued that the legislation will reduce consumer choice because utilities will price their products at — or near to — the level of the cap.
Desmond Swayne, a Conservative MP, cited the example of the tuition fees cap, noting how most universities charged students just under the legal limit.
The proposed cap on energy bills will not be in place for this winter, and campaigners have suggested it could take as long as two years to come into force.
Dermot Nolan, chief executive of Ofgem, the industry regulator, has estimated that it could take five months for the regulator to implement a cap after the bill receives royal assent.
The cap is expected to help just under 12m households. This is because more than 3m households on standard variable tariffs are customers who have pre-payment meters and benefit from price protections introduced in April.
Labour questioned why the process of introducing a cap was taking so long, with Mr Miliband saying the government could have chosen to “fast track” the measure in time for the winter.
Ministers had been pressing Ofgem to implement a cap unilaterally, but the regulator argued there was a risk of power companies launching legal appeals against the measure unless there was legislation to underpin it.
Mr Clark urged both power companies and Ofgem to act ahead of the legislation to tackle excessive energy bills.
Some utilities, including Eon and ScottishPower, have said they want to move customers on to new fixed price energy deals when their existing contracts expire, rather than have them default on to standard variable tariffs.