UK: Energy price cap falls but household bills will rise

​The energy regulator has decreased the cap on the amount energy firms can charge customers but rates are still set to grow.

As of April 1, the maximum amount average homes can be expected to spend in electricity and gas bills will decrease to £3,280, according to a statement from Ofgem.

That represents a reduction from the prior cap of £4,279, which was in force from the beginning of January to the end of March. It also takes into account the decline in wholesale energy prices.

The latest on cost of living: Energy bill increases will be a “hammer blow” to households

The price cap, which is periodically reviewed by Ofgem, establishes a maximum amount suppliers may charge per unit of energy.

The figure reflects ordinary usage levels rather than the maximum that can be charged—customers that use a lot of energy will see higher bills.

Due to the government’s energy price guarantee (EPG), which capped the price per energy unit and resulted in an average household bill of £2,500, households were shielded from the previous high price ceiling.

Nevertheless, due to the EPG threshold increasing to £3,000 for the average household on April 1st, costs are now set to climb. The price cap reduction of £500 won’t change the scheme’s estimated cost of £26.8 billion.

In order to cover the difference between Ofgem’s price cap and the EPG, homeowners should anticipate their bills to climb by an estimated 20%, or £500 annually, according to energy consultant Cornish Insights.

The end of the £400 energy rebate programme will cause prices to increase even more, according to Dr. Craig Lowrey, the lead consultant at Cornwall Insight.

“Unfortunately, the prediction for April suggests that the price cap will remain above the level of the higher energy price guarantee. Although the falling cap forecasts are encouraging, people that are already under financial strain won’t notice much of a difference until July,” he said.

Starting in October, bill payers received six payments totaling around £66 each month under the refund programme.

The chief executive of Ofgem, Jonathan Brearley, commented on the high bills by stating that a social tariff that provides lower energy prices for needy households needs to be quickly investigated.

“It will be a very difficult moment for many British households. In order to ensure that individuals are receiving all the assistance and support to that they are legally entitled to, we’re advising them to get in touch with their supplier. We also believe that there is a need for urgently assessing the viability of a social tariff for customers in the most vulnerable circumstances, given that bills continue to be so high,” he said.

There is some good news ahead, Mr Brearley hinted, but prices are still not going to fall to the levels witnessed in the last 18 months.

Although it won’t have an immediate impact on consumers, today’s announcement “reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began,” he said.

“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.”

But the pressure won’t go away completely. Prices aren’t going to go back to the level we saw before the energy crisis, he predicted.

Even with the comprehensive package of government assistance that is already in place, many households in Britain are having a very difficult time.

From July until the end of 2023, spending on the EPG will essentially be nothing because Cornwall Insights anticipates that Ofgem’s energy price cap will be lower than the guarantee.

Ofgem expects its July and October caps to be under £3,000. With such limitations, there would be no price gap between what energy firms charge and what customers pay. ​ ​

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