Default tariff cap working paper 3 – our thinking on including a headroom allowance

Correspondence and other

Publication date

Industry sector

Supply and Retail Market

On 26 February 2018, the Government introduced proposals for legislation to Parliament, to introduce a temporary tariff cap for customers on Standard Variable (SVT) and default tariffs. This proposed legislation creates a new statutory role for Ofgem to deliver this measure for Government.  Ofgem will have a new duty to design and implement the tariff cap (the ‘default tariff cap’).


This document is part of the series of working papers explaining how our thinking on the design of the default tariff cap is evolving as we gather views and evidence over the coming months. This paper discusses our thinking on headroom, an amount above the efficient level of costs, which could be used to enable competition to co-exist with the cap. We welcome feedback on our initial thinking and the analysis we are planning to undertake.


We invite comments and further engagement on the thinking and analysis proposed in this paper. We are specifically interested in views on:

  • alternative sources of evidence or analysis we should consider;
  • our approach to assessing the impact on consumer bills and on revenues and profitability, and in particular the best way to assess the impact on the smaller suppliers; and
  • additional data that could be useful in looking at the impact of price differentials on switching.

Please submit these no later than 23rd April to our mailbox: