The current energy market is broken and penalises customer loyalty, according to the Business, Energy and Industrial Strategy (BEIS) Committee.
In a report on the government’s energy price cap draft bill, the committee said the big six suppliers have brought the cap upon themselves by hiking prices and failing to help over-charged customers on default and standard variable tariffs.
The report found that competition in the domestic energy market is not working effectively for 12 million customers stuck on poor-value tariffs.
It also said the market has become two-tiered, with some consumers paying up to £300 more than others each year.
Rachel Reeves MP, chair of the committee, said: “The energy market is broken. Energy is an essential good and yet millions of customers are ripped off for staying loyal to their energy provider. An energy price cap is now necessary and the government must act urgently to ensure it is in place to protect customers next winter.”
The committee said the energy market has been dysfunctional for years, with Ofgem too slow and reluctant to use its powers to step in and protect customers’ interests, especially vulnerable customers. It is now urging Ofgem to be faster and more proactive in using its extensive powers to protect consumers from overcharging.
Once the cap is lifted, the report recommends that the government and Ofgem should take any necessary measures to ensure overcharging is eliminated for good.
The report recommends the government provides details on its plans to protect vulnerable customers from overcharging when the price cap and Ofgem’s safeguard tariff are lifted.
Lawrence Slade, chief executive of trade association Energy UK, said: “With a record one in six customers switching last year and over 60 suppliers to choose from, the energy market is changing rapidly and has never offered so much choice. It’s vital the cap doesn’t halt the growth of competition which is helping customers to find a better deal and save on their energy bills.
“It’s also important that the cap accurately reflects suppliers’ costs, most of which are out of their direct control. Ofgem’s decision to raise the level of the prepayment cap last week shows how these costs can increase.”