The Treasury has made a U-turn on a planned cut to energy support for households after warnings that it would plunge many thousands more households into poverty.
On the morning of the chancellor Jeremy Hunt’s budget speech, the government confirmed the energy price guarantee would continue at its current rate, which limits a typical annual household bill to £2,500. It is being extended from April, when it was due to expire, for a further three months until the end of June.
The about turn, which had been widely expected, means typical bills will not increase to £3,000 a year from April, as had originally been announced in autumn last year.
The move was welcomed by campaigners and the energy industry but Nigel Pocklington, the chief executive of supplier Good Energy, argued it should have been announced sooner. “The delay has caused unnecessary stress and anxiety for hard-pressed households who are trying to plan ahead during these difficult times,” he said.
The chancellor’s U-turn will relieve some pressure on households already struggling with the cost of living. However, the one-off support of £400 that has been available over the winter in monthly instalments, is still due to end on 1 April.
Hunt bowed to pressure from campaigners, charities and the consumer champion Martin Lewis after they warned more Britons would be pushed into poverty unless help was extended through the summer.
On Wednesday, Lewis thanked Hunt but added: “Of course, this doesn’t mean bills will get cheaper. In April we see the end of the winter energy support – the £66/£67 a month everyone has received to lower their bills. So in practical terms people are still going to pay more than they have been, but at least some of the planned rise has been forestalled.”
The energy price guarantee keeps bills lower by paying suppliers the difference between market prices and the £2,500 ceiling. From April, that help was due to be removed, leaving consumers with only the price cap imposed by Ofgem, the energy regulator for Great Britain. Ofgem had announced the cap would be set at £3,280 a year for a typical household from April, which would have meant a big increase in energy costs for households.
The wholesale cost of energy is forecast to fall significantly over the summer, according to forecasters, meaning the extra government help is unlikely to be needed from July.
The government said state subsidies on energy bills had typically “cut the typical family energy bill by over £1,300 since October” and that maintaining the support at its current level was worth £160 in total for an average household.
The prime minister, Rishi Sunak, said: “We know people are worried about their bills rising in April, so to give people some peace of mind, we’re keeping the energy price guarantee at its current level until the summer, when gas prices are expected to fall.
“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”
Hunt said: “This temporary change will bridge the gap [until gas prices fall] and ease the pressure on families, while also helping to lower inflation too.”
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In November, Hunt announced that the guarantee was due to rise to £3,000 on 1 April, and that the government expected to borrow £12bn to fund the support. Energy prices have since fallen by 50%, cutting the borrowing needed to fund energy support to £4bn, the Treasury said on Wednesday.
Campaigners had demanded an extension of the support at the current level until July, when the Ofgem price cap is expected to reflect the recent drop in wholesale gas prices and fall below £2,500.
As long as the level of the price guarantee is lower than the Ofgem price cap, the government will pay suppliers the difference to cover the cost of buying wholesale energy at prices, which have been inflated by the war in Ukraine.
In April, the price cap will fall to £3,280 from £4,279 and is then predicted to fall to about £2,100 from July. If this happens, the government will no longer need to subsidise bills.
The government will continue to pay suppliers the difference if the price cap remains above £3,000 after July. The policy is due to expire in April 2024.
In November, the policy was on course to cost £42bn. However, falling wholesale prices since late December have reduced the cost further. The U-turn by Hunt is expected to cost about £3bn, bringing the government bill for the energy price guarantee to an estimated £29.4bn.
