title: Domestic Gas and Electricity (Tariff Cap) Act 2018 type: wiki topic: retail-energy-regulation primary_source: https://www.legislation.gov.uk/ukpga/2018/21 source_file: ~/knowledge/sources/legislation/uk/2018-tariff-cap-act.md last_updated: 2026-04-10 tags: [tariff-cap, ofgem, consumer-protection, price-regulation, energy-prices-act-2022, retail-market] related: - supply-licence.md - gas-act-1986.md - electricity-act-1989.md - utilities-act-2000.md note_missing_cross_refs: energy-prices-act-2022.md not yet ingested; no wiki page exists for that Act

Domestic Gas and Electricity (Tariff Cap) Act 2018

The statutory basis for what is commonly called the "energy price cap": Ofgem's quarterly limit on what gas and electricity suppliers can charge domestic customers on standard variable and default tariffs. The Act was passed in July 2018 and has been significantly amended by the Energy Prices Act 2022 in ways that fundamentally changed its character.

What the Act does

The Act does not set a cap level. It creates a duty on the Gas and Electricity Markets Authority (Ofgem) to modify the standard supply licence conditions for both gas and electricity to include "tariff cap conditions": licence conditions that impose a price ceiling on standard variable rates (SVRs) and default rates charged to domestic customers.

Everything about the cap itself (the level, the methodology, the frequency of updates) lives in Ofgem's licence conditions, not in this Act. The Act delegates the methodology entirely to Ofgem, subject to a set of principles Ofgem must have regard to:

• protecting domestic customers paying SVRs and default rates
• giving suppliers incentives to improve efficiency
• enabling suppliers to compete for domestic contracts
• maintaining customer incentives to switch
• ensuring efficient suppliers can finance their activities
• (from October 2022) accounting for the public spending impact of the cap

The cap operates through Standard Licence Condition 28B of the Electricity Supply Licence and the equivalent Gas Supply Licence condition. Ofgem set it quarterly in practice, even though the statutory minimum for reviews is six-monthly.

Who is covered

The cap applies to all domestic customers on standard variable or default tariffs. Two mandatory exclusions apply:

1. Prepayment meter customers covered by the Competition and Markets Authority's 2016 Prepayment Charge Restriction Order are excluded by statute and cannot be brought within the cap even if Ofgem wished. (Ofgem extended PPM protection by separate licence condition amendment in 2023.)

2. Ofgem has a discretionary power to exempt vulnerable customers covered by a separately-imposed vulnerability cap, and to exempt renewable tariffs chosen by consumers. Neither power has been used.

Deemed supply contracts (where no explicit contract exists, for example after a customer moves into a property) are included within "domestic supply contract" and therefore covered.

The original design: a temporary cap with a sunset

As passed in 2018, the Act was explicitly time-limited in practice. The mechanism worked as follows:

1. Ofgem would carry out competition reviews in 2020, 2021, and 2022 under section 7, assessing whether the retail market was competitive enough to make the cap unnecessary.
2. After each review, the Secretary of State would publish a statement on whether effective competition was in place.
3. If the market was not yet competitive, the cap could be extended by ministerial order, but only year by year, subject to Parliamentary approval (affirmative procedure).
4. Termination under the original section 8 required a finding of effective competition and Parliamentary involvement.

This design reflected the political context: the cap was sold as a temporary intervention to protect consumers while smart meter rollout and market reform improved competition. It had an internal logic that would wind it down.

The 2022 restructuring: from sunset to indefinite

The Energy Prices Act 2022 (s.30(6) and Schedule 3) dismantled this design in October 2022, during the energy price crisis triggered by the Russian invasion of Ukraine. The changes were structural, not cosmetic:

Section 7 deleted. The competition review mechanism was removed entirely. There is no longer any statutory requirement for Ofgem to assess whether the market is competitive or make recommendations to the Secretary of State about cap continuation.

Section 8 replaced. The original year-by-year Parliamentary extension mechanism was replaced with a simple ministerial power. The Secretary of State may at any time give notice terminating the cap: for all licences, gas only, or electricity only. There is no precondition, no Parliamentary approval requirement, and no competitiveness test.

The one constraint introduced is that before terminating, the Secretary of State must "have regard to the desirability" of keeping the cap in place while the Energy Prices Act 2022 domestic price reduction schemes remain designated. This is a soft consideration, not a hard condition. The Energy Bill Support Scheme has since closed; the consideration has no practical effect on the current cap.

Section 9 decoupled. The post-termination review obligation was originally tied to the period after the cap ended. The 2022 Act removed that trigger: Ofgem must now carry out pricing reviews at such intervals as it considers appropriate, whether or not the cap is in force. This is a minor technical change but it signals that "post-termination" is no longer the expected reference point.

Additional changes in 2022: - The minimum period for Ofgem's licence condition modifications was extended from 56 days to 25 working days (effectively faster, not slower: 25 working days is roughly 5 calendar weeks, shorter than the old 56 calendar days). This was to allow quarterly cap updates to clear the procedural requirements. - Ofgem must now send a post-review statement to the Secretary of State after each six-monthly review. - Ofgem must have regard to the public spending impact of the cap (s.1(6)(e)) and to any guidance the Secretary of State provides on that.

Current legal position

The cap has no legislated end date. It runs indefinitely until the Secretary of State chooses to issue a termination notice. There is no mechanism by which the cap terminates automatically, no Parliamentary trigger, and no competition-sufficiency test. The decision is entirely within ministerial discretion.

This is a significant constitutional change from the original Act. The 2018 design involved Parliament in the decision to extend the cap beyond its initial period. The current design gives the executive the power to maintain the cap forever without further Parliamentary authority.

The practical implication: the cap is now a permanent feature of GB retail energy regulation unless and until a Secretary of State decides to end it. There is no pressure mechanism, internal or external to the Act, that forces that decision.

Analytical significance

The cap breaks the market signal it was meant to protect. The original rationale was that competition would deliver efficient pricing once it was working properly. The competition review was meant to be the test. By removing that test, the 2022 Act implicitly accepted that no return to an unregulated SVR market is imminent or politically viable, or simply deferred the question indefinitely without resolving it.

The public spending consideration (s.1(6)(e)) is novel. Prior to 2022, Ofgem set the cap based on supply cost components (wholesale, network, operating costs, headroom, VAT). The 2022 addition of "public spending impact" gives the Secretary of State a channel to influence the level (through the information and guidance mechanism in s.1(6A)) without formally directing Ofgem. This matters during periods when government support schemes (such as the Energy Price Guarantee) are running alongside the statutory cap, since the two interact.

Gas and electricity can now be decoupled. Sections 1(3A) and 8(1)(b)–(c) allow the cap to be terminated separately for gas and electricity licences. This was not possible under the original Act. It creates the legal infrastructure for a future policy in which, for example, electricity decarbonisation warrants different treatment from gas under a declining-demand scenario.

The post-termination review obligation is now continuous. Section 9's review duty, originally framed as a post-cap backstop, now runs in parallel with the cap. This means Ofgem is expected to monitor whether categories of vulnerable or SVR customers need protection even before the cap ends, implicitly acknowledging that the cap itself may not be sufficient protection for all.

Procedure for modifying cap conditions

Before modifying any cap conditions, Ofgem must:

1. Publish notice of the proposed modifications and their effect.
2. Allow 28 days for representations from affected parties.
3. Send copies of the notice to: all supply licence holders, the Secretary of State, Citizens Advice, and Consumer Scotland.
4. Consider all representations received within the notice period.

After deciding to proceed, Ofgem must publish the modifications and they take effect no sooner than 25 working days after publication.

Key dates

Source

Primary source: Domestic Gas and Electricity (Tariff Cap) Act 2018

Full canonical text with amendment history at: ~/knowledge/sources/legislation/uk/2018-tariff-cap-act.md