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An energy bill price cap of £1,136 a year for “typical usage” has been proposed by the regulator, Ofgem. It says the move will mean 11 million households on default deals will save about £75 on average, although the amount households could save will depend on their usage and supplier.

The planned cap will be confirmed in November, take effect at the end of December and stay in place until 2023.

Ofgem said it was a “tough” cap which would give a fairer deal to consumers. The plan is that when the price cap is introduced at the end of the year, gas and electricity suppliers will have to cut their prices to the level of or below the cap.

The £1,136 per year cap is based on a typical dual fuel customer paying by direct debit and the aim is to force energy companies to scrap excess charges for people on poor value default deals.

The 11 million households on default tariffs should be better off after the cap is introduced. More than half of all households in Britain are on default tariffs – normally a standard variable deal – because they have never switched or have not done so recently.

Even those that have switched in the past are often automatically put on more expensive default deals when they come to end of fixed-term contract deals.

A typical dual fuel customer who buys their gas and electricity from the same supplier and is on a standard variable tariff is set to save about £75 on average.

A typical consumer on the most expensive tariff would save more than £120, Ofgem has calculated. But the saving depends on which supplier you are with and whether you pay by direct debit or not.

A typical British Gas customer, for instance, would save about £69, according to Ofgem figures. But someone with Scottish Power, which currently has the most expensive default tariff, would save about £121.

The regulator was given powers by the government in July to introduce the cap, in the latest attempt to help consumers struggling with the increasing costs of heating and lighting their homes.

The Domestic Gas and Electricity (Tariff Cap) Act became law on 19 July and gave Ofgem a duty and the powers to put the price cap in place.

Ofgem chief executive Dermot Nolan said: “Once the price cap is in place, all households in Great Britain covered by the cap will be protected from being overcharged for their energy.”

However, he pointed out that consumers could save even more money by switching supplier. Energy UK is the industry body which represent gas and electricity firms. Its chief executive Lawrence Slade warned that the cap “will pose a significant challenge” for the more than 70 suppliers operating in the domestic energy market.

“It is crucial that the cap ensures we have an investible energy sector where efficient and financially robust companies can trade, and innovation and engagement can continue to flourish and deliver benefits for consumers.”

However, he added: “Energy efficiency is the most effective way to help customers save money on their energy bills for the long term.”

Stephen Murray, energy expert at MoneySuperMarket, warned consumers not to be complacent about saving money on energy.

“You might think Christmas has come early with the savings mooted in today’s announcement of the price cap level, but you’d be missing the bigger picture,” he said.

“There are more than 100 tariffs available right now which are cheaper than the proposed level of the price cap at £1,136. That means switching today could save you £250 or more, and there’s no need to wait for a price cap that would actually save you on average £75.”

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