The UK’s energy regulator has lowered the energy price ceiling by almost £1,000 for a typical home, but consumers will still face higher bills from April as the government cuts subsidies for households.
The maximum price, which normally governs the amount paid for gas and electricity bills for typical use, will fall to £3,280 from April, having previously stood at £4,279 for the January-March period, Ofgem announced on Monday.
The drop partly reflects the significant decline in wholesale gas and electricity prices in recent months, with a further drop in the ceiling expected towards the end of the year as lower costs for utilities start to show up in bills.
The regulatory change will not provide any relief for families, however, as the government is set to drastically reduce the amount of support it has provided.
Its Energy Price Guarantee (EPG), which was put in place last October to limit typical bills to £2,500 in the winter months when energy use is higher, is set to rise to £3,000 from April. An extra direct subsidy of £400 paid in six monthly installments from October will also end.
Ofgem’s cap price determines the amount of subsidy the government must provide above the level of its guarantee. Energy analysts are predicting that from June the cap will drop below the government’s price guarantee level, at which point households with average usage will pay that amount.
“While wholesale prices have fallen, the price ceiling has not yet dropped below the planned energy price guarantee level. This means that, under current policy, bills will rise again in April,” said Ofgem chief executive Jonathan Brearley.
“However, today’s announcement reflects the fundamental change in the wholesale cost of energy for the first time since the start of the gas crisis, and while it does not make an immediate difference to consumers, it is a sign that some of the immense pressure we have seen in energy markets over the past 18 months may be starting to ease.”
Poverty activists have urged Jeremy Hunt, the UK chancellor, to keep the guarantee at £2,500 until the summer, pointing to the cost of the government’s energy support package being lower than expected as wholesale prices have fallen. .
Cornwall Insight, a consultancy, has estimated the cost to the taxpayer of extending the £2,500 price guarantee to the end of June at around £2.5 billion. He estimated the total cost of the scheme at £26.8bn if the government cuts support as planned, rising to £29.4bn if the guarantee remains at £2,500.
But the Treasury has so far shown no signs of reversing course, as it does not want to expose itself to the possibility of wholesale prices rising again.
Citizens Advice warned that the loss of government support would result in the number of families struggling to pay their bills doubling to one in five from the end of next month.
“Without more government support, April will be a catastrophe for millions of families,” said Clare Moriarty, executive director of Citizens Advice.
“The government must keep the EPG at its current level of £2,500. Recent drops in wholesale prices mean they have room to do this. The alternative is millions more people unable to keep their homes warm and keep their lights on,” she added.
Consumer advocate Martin Lewis, who also called for the price guarantee to remain at £2,500, said that “reading the runes” he believed the government could still reverse course.
“It seems like an act of national mental health damage to send millions, almost everyone, a letter saying their energy bills are going to go up 20% again when they’ve already more than doubled, just because of three months. ”, Lewis told ITV Good morning Great Britain. Lewis’s campaign is supported by Energy UK, the trade body for the industry, as well as dozens of charities.
Cornwall predicted Ofgem’s price cap would drop to around £2,100 in the last six months of this year, although future forecasts are more volatile and could change depending on the direction of wholesale prices. Before the energy crisis, the price cap usually hovered around £1,200.
The price cap does not limit how much consumers can pay if they use more than the normal amount of energy, so larger homes generally pay more.