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Mind the gap between default and fixed tariffs

Kate Hill Senior Analyst

The first three months of Ofgem’s default tariff cap are nearly at an end. Introduced by the regulator with a claimed typical saving of £76/ year from 1 January 2019, the cap is to increase effective 1 April 2019 by £117/ year for its six-month summer period. The final weeks of 2018 saw many suppliers cut their standard variable tariffs (SVT) to make sure they were compliant with the new cap’s starting level of £1,137/ year. Likewise, recent weeks have seen some suppliers increase their SVTs, anticipating the new level of the cap and often citing Ofgem’s calculations when explaining their moves. They need to give at least 30 days’ notice of intent to increase their tariffs and, as the chart implies, by the end of February all large suppliers had announced SVTs up to the new level of the cap. In contrast, some other suppliers had opted to increase their SVTs, but on average SVT costs for the medium and small supplier groups we monitor were lower at the end of February 2019 than at the end of December 2018. Moreover, average medium supplier fixed tariffs fell by 2% over the same period. The combination of lower fixed tariffs and a higher cap will notably widen the price range of tariffs at 1 April compared to 1 January. As the cap was being phased in for 1 January the gap between our measure of the cheapest average tariff type (small supplier fixed tariffs) and large supplier SVTs was £67/ year. The equivalent gap between ...

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