That means the average big six standard variable tariff (SVT) price will drop from a typical £1,221/year to £1,137/year (for clarity, this doesn't mean £1,137/year is the most anyone pays – use more and your cap's higher).
Ofgem calls this a 'fair' tariff, but that doesn't make it a 'good' tariff – the cheapest deals are still far less.
And be aware, this cap will be updated every April and October. Since Ofgem first announced the proposed cap level in the summer, wholesale rates (what energy firms pay) have exploded, so some analysts and those within the energy industry predict it could be £110+ higher by next April.
Ofgem itself has warned an increase is likely, due to higher wholesale costs over the last year.
However, the real savings are still to be made from switching, and to encourage more people to change energy providers Ofgem has also been trialling other initiatives. These include targeting those that have been on standard tariffs for more than three years to highlight the savings they could make by moving suppliers, and organising a collective switch.
Ofgem has also announced plans for a one-day switch, which will eventually allow customers to switch by the end of the next working day.
What's behind the price cap move?
According to Ofgem, around 54% of customers – that's about 11 million households – are still on expensive standard tariffs, often paying £100s/year more for the same gas and electricity than the cheapest tariffs on the market.
To try to prevent these customers from being further ripped off, the Government has ordered Ofgem to set a level that suppliers can charge on their standard and default tariffs until 2020. This cap will come into force from 1 January 2019. This is in addition to the current price cap for prepayment customers.
Price cap mythbusting
We've seen lots of confusion over how the price cap will work – so here we answer some of the key questions we've seen and take you through some of the quirks of the new rules below.
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