The energy price cap reduction has been confirmed by Ofgem today (May 25) but what will it actually mean for your bills and how much will prices change?
The energy price cap is due to drop from the current £3,280 per year to £2,074 for the average household in England, Wales and Scotland. It will take place from July 1 due to falling wholesale energy prices.
The lower cap will replace the Government’s Energy Price Gurantee (EPG) which currently limits typical household energy bills to around £2,500. So the typical annual bill will fall by around £426. But experts have warned consumers are likely to feel little benefit when it comes to their bills. Campaigners also warned those who struggled to pay their bills over winter may still face difficulties.
Ofgem boss warned many families will continue to struggle
Speaking on Good Morning Britain, Ofgem boss Jonathan Brearley admitted that many households will continue to struggle as bills remain high. He explained: “We have seen a massive shock to our market. We saw Russia withdraw a huge amount of gas from the market and that drove prices up last year. Now, things are recovering, but as ever it is hard to predict what might happen in the future.”
He added that Ofgem hopes prices will continue to fall, but it is difficult to predict. He continued: “Prices are drifting down and the market is stabilising. We’re hopeful that we will see fixed prices enter the market in the second half of this year. But predicting when prices will fall back to where they were is extremely difficult. I think that will take time.”
In my view, this leaves a moral hazard that the less you use, the less you save.
Martin Lewis also warned that the standing charge – the £300 households pays each year just to access gas and electricity – is unlikely to fall. He explained: “In my view, this leaves a moral hazard that the less you use, the less you save. I have lobbied Ofgem hard on this, sadly to little avail.”
Will energy bills fall this summer?
Consumers will generally pay less for their annual bills. But the energy price gap drop won’t necessarily mean bills will feel any cheaper. That’s because the government’s support schemes have ended, meaning some families’ monthly payments may be higher than in winter when the discount was in place. The energy discount ended in April.
Households are also being warned that the energy price cap is not an absolute limit on annual bills. The cap does not set the maximum a household will pay for their energy, but limits the amount providers can charge per unit of gas or electricity. So those who use more energy will pay more than the annual cap.
Energy price cap: Campaigners warn ‘the energy crisis is far from over’
The government will end subsiding energy bills via the guarantee in July. Only those in receipt of means-tested benefits, pensioners and those with disabilities are currently set to receive further help with their energy bills, amounting to £900, £300 and £150 respectively.
But campaigners have warned without government support, the energy crisis is far from over. Fuel poverty charity National Energy Action chief executive Adam Scorer said: “Coming out of winter, most people will welcome any respite from record high prices. But it still leaves prices more than 80% higher than the start of the energy crisis and two million more households trapped in fuel poverty.”
He added: “More than two and a half million low income and vulnerable households are no longer receiving any Government support for unaffordable bills. For them, the energy crisis is far from over.”
A consultancy firm, Cornwall Insight, has predicted that the energy price cap could fall again in October. It expects the typical annual bill to fall to £1,976. But it also forecasts the typical bill will rise again in January to £2,045. Consumers are warned that the UK’s reliance on energy imports means that geopolitical incidents could continue to have a significant impact, such as the war between Russia and Ukraine.
Read more: Cost of living crisis: Your weekly shop ‘is set to become cheaper as prices fall’
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