Ofgem energy price cap cut to £3,280
Newsflash: The price cap on the amount suppliers in Great Britain can charge for energy will fall by around £1,000 to £3,280 from April – but average bills are actually set to rise this spring.
The energy regulator Ofgem has just announced that its quarterly cap on household bills for average dual-fuel direct-debit customers will fall by around 23% for the three months from 1 April, from £4,279 for the January to March quarter.
But, as we’ve been covering this morning, consumers will not actually pay the average price cap, due to the government’s energy price guarantee (EPG) which limits maximum costs on energy.
Importantly, both the Ofgem cap and the EPG apply to average unit energy prices – there is no limit on the maximum bill which a customers can run up.
The EPG is due to beome less generous in April, rising to £3,000 for the typical bill, creating what Liberal Democrat leader Sir Ed Davey called a ‘cost of living cliff edge’.
Today’s Oftem announcement is significant to taxpayers, though, as it will be used to calculate how much the government will pay energy suppliers to limit typical bills to £3,000 from April.
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 but fallen back since.
But, as Citizens Advice chief executive Dame Clare Moriarty has predicted the number of people who cannot afford their energy bills will double from April, the cost of living crisis will continue to grip the UK.
Key events
Ofgem CEO: urgent need to examine social tariff for vulnerable customers
Many households will be deeply concerned by the prospect of energy bills rising in April, says Ofgem chief executive Jonathan Brearley.
Brearley explains that today’s 23% cut in the energy price guarantee reflects a ‘fundamental shift’ in the energy market, which could mean significant falls in enegy bills in the summer.
“Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means that on current policy bills will rise again in April.
“I know that for many households this news will be deeply concerning.
“However, today’s announcement reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won’t make an immediate difference to consumers, it’s a sign that some of the immense pressure we’ve seen in the energy markets over the last 18 months may be starting to ease.
“If the reduction in wholesale prices we’re currently seeing continues, the signs are positive that the price cap will fall again in the summer, potentially bringing bills significantly lower.
However, prices are “unlikely” to fall back to the level we saw before the energy crisis, Brearley warns.
And the Ofgem CEO says there is a case to urgently examine if the most vulnerable customers should receive a ‘social tariff’ – meaning lower bills for those on low income.
Brearley says:
Even with the extensive package of government support that is currently in place, this is a very tough time for many households across Britain.
“Where people are struggling, we urge them to contact their supplier to make sure they are getting all the help and support they are entitled to. We also think that, with bills continuing to be so high, there is a case for examining with urgency the feasibility of a social tariff for customers in the most vulnerable situations.”
In January, 95 charities and non-profit organisations wrote an open letter to chancellor Jeremy Hunt calling for a “social energy tariff” that would provide cheaper gas and electricity for low income households.
Earlier this month, Conservative MP Sir Robert Buckland said that an energy social tariff should be introduced for the most vulnerable members of society.
Liberal Democrat leader Ed Davey MP has repeated his call for the government not to lift its limit on average bills to £3,000/year in April.
Ofgem announcement today that the energy price cap has been reduced to £3,280 for the average households shows that the government can afford to ditch the rise in the energy price guarantee to £3,000, Davey insists.
He says:
“This confirms the government could easily afford to reduce energy bills in April instead of increasing them.
“People are already struggling to afford their rents and mortgages, food shopping and bills.
“It is unforgivable that the Conservatives are choosing to push desperate families over the edge by hiking their energy bills by another £500.
“Ministers must listen to our calls for an energy rescue package to save families and businesses from this cost of living cliff-edge, funded through a proper windfall tax.
Martin Lewis of MoneysavingExpert believes there is a ‘good chance’ that Jeremy Hunt will be persuaded not to raise the government’s Energy Price Guarantee to £3,000/year for a typical household from April, from £2,500 at present.
NEWS
The Apr-Jul @ofgem energy price cap is 23% lower (dropping from £4,279 to £3,280 for someone on the meaningless ‘typical’ bills)As it’s still above govt subsidised Energy Price Guarantee (currently £2,500 rising 20% to £3k in Apr) it doesn’t change what we pay mainly
Cont
— Martin Lewis (@MartinSLewis) February 27, 2023
Tho
1. Price cap does set balance between DD, prepay, eco 7 & pay by receipt of bills costs, so we’ll monitor that granular detail when it’s out.
2. I’m campaigning against the 20% Energy Price Guarantee rise, and reading the runes, think there’s a good chance of succeeding.
— Martin Lewis (@MartinSLewis) February 27, 2023
Campaining groups are calling on the government to rollout an effective programme to insulate people’s homes, to cut energy usage and bills.
Greenpeace UK’s climate campaigner, Georgia Whitaker, said:
“Millions of cash-strapped households are facing a very steep cliff edge after being dealt a devastating double blow of yet another bill price hike just as financial support is stripped away. But it is the government’s abject failure to deliver a proper plan, programme or funding to insulate homes and decarbonise heating that will push them all over the edge.
“Ministers seem to have abandoned all plans to tackle fuel poverty along with the millions plunged into it. But the solutions to the cost-of-living and energy crisis are the same as those needed to tackle the climate crisis. Struggling households will be left in freefall unless the government delivers a properly funded green homes scheme that reduces energy usage and keeps bills down for good.”
Here’s Connor Schwartz, warm homes campaigner at Friends of the Earth:
“Though the new Ofgem price cap won’t have an immediate impact on people’s bills, it’s a stark reminder that energy remains incredibly unaffordable and that we are still at the whim of volatile global gas markets. Clearly, there is an ongoing need for action from the government to support people through this crisis and to prevent the next one.
“While some predictions say energy bills might finally start to drop later in the year, they’ll still be double what they were a year ago. This is hardly reassuring to those who are barely getting by. And even if the government does extend its energy price guarantee beyond April, which it should, it’s only a sticking-plaster solution that fails to address the root causes of the energy crisis.
“The government must not delay any further in rolling out a street-by-street insulation programme. Not only is this the best solution to lower bills permanently and help those struggling most, it’s also badly needed for the sake of our planet.”
Government: Suppliers should pass on cheaper energy costs
The UK government says it expects customer to pass on cheaper energy costs in the coming months.
A Department for Energy Security and Net Zero spokesperson says current support (which becomes less generous in April) will have saved the typical household around £1,000 by the end of June.
“Government support will continue to help households with their energy bills.
“We know this is a difficult time for families, which is why the Government has covered around half of the typical household’s energy bill this winter, and by the end of June the Energy Price Guarantee will have saved a typical household in Great Britain around £1,000 since it began in October. In the meantime, we’re committed to helping people with rising costs by reducing inflation and growing the economy.
“The cost of energy has already been falling and we expect this to drop further over the coming months, which we fully expect suppliers to pass onto their customers.”
Energy consumers across Great Britain have yet to feel the benefits from falling wholesale costs this year, points out Richard Neudegg, director of regulation at Uswitch.com.
Responding to this morning’s announcement that the energy price cap will drop from £4,279 to £3,280 per year from April, Neudegg says:
“This significant fall in the Ofgem price cap should mark a turning point for the energy market, and could be the last quarter in which the cap is priced above the current Energy Price Guarantee level.
“Yet, with the Energy Price Guarantee still set to rise by 20% to £3,000 a year for average consumption and the end of the £400 Energy Bills Support Scheme, households will be facing higher bills from April.
“Wholesale prices have dropped more than 50% since December 2022 but consumers have yet to feel the benefit.
Neudegg argues that suppliers need to offer households more fixed deals again, to bring stability to the market:
“Now is the time for fixed deals to return to the market to get the benefits of falling wholesale prices to consumers as soon as possible. After 18 months of sky-high energy bills, households need stability as well as choice in who their energy provider is and what they pay.
“A return to fixed deals will bring the benefits of competition back to the market, giving consumers the chance to vote with their feet and choose a supplier with the best deal and customer service, as well as locking in more price certainty.
“Current intervention, including the market stabilisation charge implemented by Ofgem, is actively dissuading suppliers from offering competitive deals that consumers desperately need.”
TUC: government must cancel April’s increase in energy bills
The TUC have calculated that energy bills will rise 9.5 times faster than wages this year.
Energy bills will be 52% higher in April 2023 than they were in April 2022, the trade unions group says, once the government’s price guarantee rises to £3,000 per year.
That’s because a year ago, Ofgem lifted the price cap on default tariffs to £1,971 per year from April 2022.
Since last April, nominal wages (excluding inflation) are forecast to have grown by 5.5%.
TUC General Secretary Paul Nowak has added his voice to those urging Jeremy Hunt to keep average bills at £2,500 per year – the current level.
Nowak says:
“Energy bills are out of control. The government must cancel April’s hike.
“With the cost of wholesale gas plummeting ministers have no excuse for not stepping in.
“Families across Britain are at breaking point. Prices are skyrocketing, but wages are failing to keep pace with the cost of living.”
Alex Lawson
Ofgem says that, from 1 April, the price cap per unit of electricity will fall from 67p per kilowatt hour to 51p, plus a 53p per day standing charge.
For gas, the unit cost will fall to 13p per kWh from 17p with the standing charge at 29p per day, up 1p.
Around 4 million prepayment meter customers will pay an additional £45 a year, as energy companies say they cost more to serve. The disparity in the cost between prepay and direct debit customers has been questioned amid the scandal over forced installation of prepayment meters, my colleague Alex Lawson explains.
Here’s the full story on today’s Ofgem announcement:
Cost of energy bill support to fall 90%, says Resolution Foundation
Ofgem’s price cap announcement confirms that the cost of government energy support is set to fall by 90% in the next financial year to just £1.4bn, the Resolution Foundation has calculated.
Resolution Foundation explains:
The level of the price cap will not affect consumers as it is above the level of the EPG, which is due to rise to £3,000 in April.
Based on current market pricing, the price cap is set to fall below the level of the EPG from July onwards as big falls in wholesale gas prices since last summer finally feed through into lower household bills.
As a result, the cost of the EPG in 2023-24 – which will only likely apply between April and June this year – is set to be just £1.4 billion, 90 per cent lower than the £12.8 billion forecast made at the Autumn Statement.
Emily Fry, economist at the Resolution Foundation, points out that families face a significant increase in bills from April – unless Jeremy Hunt heeds calls to keep the EPG at the current level of £2,500/year for an average bill.
“The latest Ofgem price cap is a stark reminder of the lag between falling wholesale gas prices, and falling household energy bills.
“While consumers won’t have to face typical bills of £3,280 this Spring, many are still set to see bills rise by a fifth as government support is scaled back.
“The Chancellor should prevent this coming energy bills spike by maintaining the level of the EPG at £2,500 for a further three months.”
🚨The latest @ofgem price cap of £3,280 confirms that the cost of universal energy support – delivered through the Energy Price Guarantee (EPG) – is likely to fall by 89% next year to £1.4 billion.
— Emily Fry (@FryEmily) February 27, 2023
The 23% cut in the energy price cap announced this morning won’t mean a 23% cut in average bills in Great Britain from April.
As Ofgem points out, its new energy price cap is still above the government’s own guarantee on bills – which goes up from £2,500 to £3,000 in April.
The regulator says:
In light of the increase in wholesale prices across 2022, the government announced the energy price guarantee (EPG) which came into effect on 1 October 2022. The EPG protects consumers, reducing the unit cost of electricity and gas so that a typical dual fuel direct debit bill for a domestic consumer reaches a target level.
From 1 April 2023, the energy price guarantee is expected to increase from £2,500 to £3,000 for a typical dual-fuel, direct-debit domestic consumer and will be extended until April 2024. That means from 1 April 2023, a typical household in Great Britain will see an increase in their bills, however the EPG still reflects a discount relative to the underlying price cap.
The EPG sets maximum prices, not maximum bills. For an individual customer, the amount they will pay under the EPG varies depending on how much energy they use, where they live, and how they pay for their energy.
