The default tariff cap limits the price a supplier can charge you per kWH of electricity and gas (this is the unit measure which your bill is calculated from). This price is different from your total bill cost, which will go up or down depending on how many units of energy you use.
If you get the government’s Warm Home Discountopen key term pop-up and are on a 'standard variable' or 'default' tariff, you are protected by the prepayment price cap (sometimes called a 'safeguard tariff') until the end of 2018, after which you will transfer to the ‘default tariff’ price cap.
If you have chosen to be on a fixed-term energy tariffopen key term pop-up, your prices will not be protected by the cap. These tariffs are more likely to be good value.
Parliament has passed the UK government’s legislation giving Ofgem, as the energy regulator, powers to put the cap in place and set the level of the cap. The cap will be in place on 1 January 2019. We will update it every six months to reflect the latest estimated costs to supply gas and electricity to you.
Suppliers can't set their prices above the tariff cap, so it will ensure the price you pay is fair, and protect you from being overcharged.
These tariffs are an energy supplier’s basic offer, and tend to apply if you haven’t shopped around for a better deal. They are typically poor value and more expensive than a non-default, fixed-term contract deal, which you can choose to switch to. You will often need to renew fixed-term contracts after a year or more. If you have never switched, or not switched for a long time, you are likely to be on one of these tariffs. Over half of all households in Great Britain are on default tariffs because they have never switched or have not done so recently.
The most common type of default deal is a ‘standard variable’ tariff. A standard variable tariff has prices that can go up and down with the market. These tariffs don’t generally have an end date and won’t have a fixed-term period applying to any of the contract terms and conditions, such as your gas or electricity unit prices. You could be put on one if a fixed-term energy contract ends and you’ve not chosen a new one.
No. Your supplier must automatically ensure its prices fall to the level or below the price cap we set if you are on a 'standard variable'open key term pop-up energy tariff or a tariff you haven’t chosen (a 'default tariff'open key term pop-up).
If you get the government’s Warm Home Discount and are on a 'standard variable' or 'default' tariff, you are protected by the prepayment price cap (sometimes called a 'safeguard tariff') until the end of 2018, after which you will transfer to the ‘default tariff’ price cap.
If you have questions, you should first contact your supplier. They can tell you if your energy tariff is covered by a price cap. They must also write to tell you if your tariff is changed in a way that could disadvantage you, or if the tariff you are on is no longer available.
It’s due to end by 2023. By then we expect other reforms, like faster switching times and smart meters, alongside other advances in the energy industry, to bring about easier and fairer access to better deals.
As the regulator, we monitor the market closely to make sure it’s competitive, and will report to the government. We’ll update the caps twice a year to ensure prices are fair, and keep a close eye on your energy supplier and the energy market more generally to make sure you are getting a fair deal at all times. Based on our reports, it will be up to the government to consider if the market is working well enough for the cap to be removed.
As the energy regulator, Ofgem administers and sets the level for the price cap. We do this based on a broad estimate of how much it costs an efficient supplier to provide gas and/or electricity services to a customer.
We update the level of the cap every six months, either reflecting changes in underlying costs, or increases in inflation. Our calculations cover:
- wholesale energy costs: how much a supplier has to pay to get the gas and electricity to supply households with energy (we base this on forward prices for energy to be delivered over a 12-month period);
- network costs: the regional costs of building, maintaining and operating the pipes and wires that carry energy across the country to your home. This causes the level of the cap to vary by region.
- policy costs: the costs related to government social and environmental schemes to save energy, reduce emissions and encourage take-up of renewable energy
- operating costs: the costs incurred for suppliers to deliver billing and metering services, including smart metering
- payment method uplift allowance: the additional costs incurred through billing customers with different payment methods
- headroom allowance: this allows suppliers to manage uncertainty in their costs
- EBIT (Earnings Before Interest & Taxes): a fair rate of return on suppliers’ investments
- VAT: 5% tax added to the level of the tariff.
We calculate the bill values associated with the different tariff types using a ‘typical domestic consumer’ with medium energy use. At October 2017, typical consumption values for a medium user are 12,000 kWh per year for gas and 3,100 kWh per year for electricity (profile class 1). Find out more at typical domestic consumption values.
You can find further detail on our methodology in our statutory consultation decision.
Yes. In general, suppliers set prices based on differences in network charges. This means that the price you pay reflects how much it costs to transport energy to the region you live in.
Cost reflective charges are a reasonable way to allocate the costs to run and maintain the energy network between customers. It encourages energy companies to be more efficient, for example by incentivising energy generators to set up nearer towns and cities to cut transportation costs. These efficiencies can then be passed on to customers through cheaper tariff offers.
Find out more about the network part of your bill at The energy network: How it works for you
You can view the default tariff price cap level for each region and meter type by payment method on our page What are the energy price cap levels now? You can also see a visual breakdown of the different cost factors that influence the tariff level each time we update it.
The UK government introduced legislation for the default tariff price cap. They were concerned that suppliers have been overcharging customers who do not switch. If you are less active in the energy market, you tend to pay over £320 more as a result.
Price differences between default and standard variable tariffs and fixed tariffs have also widened, suggesting suppliers can offer low-price fixed tariffs to attract active consumers and cover direct costs, but rely on the higher prices charged to less active customers to cover their operating costs and maintain profits. You can see how standard variable tariff prices compare on the Ofgem Data Portal.
Yes, if you’re on a poor value standard variable or default deal. Suppliers must cut their prices to the level or below the caps we set. So if you’re on one of the tariffs currently priced above the cap, you will save money.
If costs fall, the caps make sure suppliers pass on savings. Equally, if costs rise then you can have peace of mind that the cap ensures that any price rise is justified based on what it costs to get energy to you.
A price cap won’t cap your total bill, it only sets the price for each unit of energy you use. That’s because the amount you pay also depends on how much gas or electricity you use – if you use more energy, then your bill will go up. If you use less, then it will go down.
Your capped tariff price will depend on:
- the region you live in
- the tariff you're on and how you pay
- the kind of meter you have.
We will set the level of the cap every six months to reflect the latest estimated costs to supply gas and electricity. This ensures you will always pay a fair amount, as the price you are charged can only ever go up in line with the underlying costs to get energy to you. The price cap will protect you from being overcharged.
You can see the current levels of the default tariff cap on our price cap data page.
Your bills could go up under the cap, if the cost of getting gas and electricity to your home goes up and depending on how much energy you use. But through the cap, we will make sure that your supplier justifies any rises and that they are fair. Suppliers can’t charge you anything above the cap.
The cap is temporary while we introduce other reforms, such as faster switching, and smart meters designed to make the market work better, and to protect consumers.
The default tariff price cap gives you peace of mind that you are paying a fairer price based on the underlying costs to serve energy to your home.
You don’t need to do anything to be price protected – your supplier must apply the cap. But, even if you are covered, you should still shop around to see if you can save by switching to a different tariff or supplier. It is likely there will be offers which could save you even more money on your gas and electricity than staying on an energy contract covered by the price caps.
More than half of UK households have never switched or have only switched once, and are on more expensive ‘default’ and ‘standard variable’ tariffs as a result. We’re making the switching process faster and more reliable too.
Where you can, switch to a fixed tariff to cut your bill prices further – saving money on your bill could also make it more affordable to repay a debt if you have one. See our energy guides below for more advice.