The government has warned energy companies it is still prepared to legislate for an energy price cap, after British Gas announced a 12.5% electricity price rise for more than 3m households.
The increase would add £76 to a typical annual electricity bill, and some experts warned that it could kick start a new round of price rises from the so-called Big Six energy companies.
A senior government source said Ofgem had to act fast to safeguard poorer consumers and had the powers to do so – and repeated warnings that the government would be forced to legislate if the regulator’s proposals were inadequate.
“It’s never been off the table, but Ofgem has the power to make the reforms and can move quicker than legislation. But we will legislate if it comes to it,” the source said.
The business secretary, Greg Clark, wrote to Ofgem in June asking it to safeguard “customers on the poorest value tariff”, appearing to soften on a Conservative manifesto pledge to introduce a cap on standard variable tariffs used by 17m homes.
The regulator held a summit last week with consumer groups on developing a “safeguard tariff” to extend an existing cap for the 4m households on prepayment meters to a further 2.6m poorer households who receive the warm home discount.
However, government sources suggested they would not accept any proposal from the regulator that rebranded standard tariffs rather than reformed them.
British Gas is the last of the Big Six to announce a price rise this year and the increase was widely expected because the energy giant had pledged to freeze prices until August after the other five companies announced rises in March.