13th October 2017 | Posted by: Daniel Birkett | Industry News

The draft legislation to cap domestic energy bills has been published by the government, the BBC reports.

The Draft Domestic Gas and Electricity (Tariffs Cap) Bill has been published by the government, awarding more power to Ofgem to cap standard variable tariffs which can prove very costly to some consumers.

Approximately 12 million homes are currently on uncapped tariffs due to failing to switch contracts from their incumbent supplier, these default tariffs charge inflated rates which can add hundreds of pounds to the annual energy bill of households.

The cap is not expected to come into effect before winter 2017 and will last until 2020, with the possibility of it being extended to 2023 should Ofgem deem necessary.

Green tariffs and tariffs for prepayment meters which are already capped will be exempt from the changes.

Greg Clark, the Business and Energy Secretary said that customers contracted to the big six energy suppliers were "overpaying to the tune of £1.4bn a year". He added that the draft legislation would send a "clear message to suppliers and they must act to put an end to loyal consumers being treated so unfairly".

However, former Ofgem board member, Steve Smith believes the cap could result in higher fixed fees. He told the BBC: "It could actually do harm to competition and means many customers will end up paying a lot more. If two-thirds of the market is covered by a cap you start to question whether it's a market at all."

Ofgem agreed to the government plans despite a recent investigation carried out by Competition and Markets Authority (CMA) which stopped short of suggesting a price cap.

Two of the Big Six, E.On and Scottish Power have also claimed that they will scrap standard variable tariffs if required.

Ofgem stated yesterday that the legislation must be confirmed before any action could be taken, with the plans set to be reviewed by a committee of MPs representing different parties.

It was also announced on Wednesday that Ofgem will extend the prepayment tariff price cap to an extra one million vulnerable households in order to save them £120 a year, taking effect from February 2018.