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The Guardian - UK
The Guardian - UK
Business
Jillian Ambrose

Ofgem energy price cap falls to £2,074 but households will see little relief

Woman holding smart energy meter in kitchen
Most people will not feel better off despite the lower fuel cap, fuel poverty campaigners say. Photograph: monkeybusinessimages/Getty Images/iStockphoto

Great Britain’s energy price cap has fallen to £2,074 a year, but the average household will still pay almost double the rate for their gas and electricity than before costs started to soar.

About 27m households can expect a modest drop in energy bills this summer after the regulator Ofgem lowered the cap on the typical annual dual-fuel tariff to reflect a steep drop in global energy prices over recent months.

From July, when the change takes effect, households will see their average gas and electricity bill fall from the £2,500 a year level set by the government’s energy price guarantee. However, those who struggled to pay their bills over the winter will feel little relief, because government top-ups worth £400 between October to March have come to an end.

Households also face being charged an extra £10 a year on their energy bills from October to bolster the profits of their energy provider, under plans put forward by the regulator alongside the new cap.

Ofgem has justified increasing the amount of profit suppliers can make from 1.9% to 2.4% because this would prevent them going bust, and the cost of bailing out a failed supplier would be higher. Under the plan, annual supplier profits would climb from £37 a household to £47.

The plan to bolster energy company profits sparked one of the biggest share price rises of the day for the owner of British Gas. Shares in Centrica climbed by about 2% after analysts estimated that the move could hand the company an extra £56m a year.

Gillian Cooper, the head of energy policy at Citizens Advice, said: “Supplier profit margins in the retail price cap have already increased in line with energy bills and we are not convinced further increases are justified. We need to keep the focus on providing more support to people this winter.”

Under the new cap, the average energy bill will remain almost double the level seen in October 2021 – when Russia began restricting supplies of gas to Europe in a move that sent wholesale prices soaring. Before the energy crisis, the typical household paid £1,271 a year for gas and electricity.

Households could still face dual-fuel bills above £2,074 if they use more than the typical amount of energy because Ofgem’s cap limits the rate energy suppliers can charge customers for each unit of gas and electricity – not the total bill.

The cap does not offer help to businesses, charities or public sector organisations such as schools, hospitals and care homes. A scheme brought in by the government at the start of April offers eligible businesses a discount on the wholesale price of energy, offering a total of up to £5.5bn of support over a year, far less than the estimated £18bn over six months given out under the previous aid package.

Jonathan Brearley, the chief executive of Ofgem, said that after a difficult winter for consumers it was encouraging to see that “prices are moving in the right direction”.

“However, we know people are still finding it hard, the cost of living crisis continues and these bills will still be troubling many people up and down the country. Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.”

Brearley added that households were “unlikely to see prices return to the levels we saw before the energy crisis” in the medium term and called on the government to work with Ofgem, consumer groups and the wider industry to help support vulnerable groups.

Simon Francis, a coordinator at the End Fuel Poverty Coalition, said: “The sting in the tail to this announcement is that customers are still going to be paying roughly the same for their energy as last winter. And after months of inflation and the wider cost of living crisis, people are even less able to afford these high energy bills.”

Fuel poverty campaigners at National Energy Action have warned that most households are unlikely to feel any better off, and about 6.5m households will remain in fuel poverty despite the lower rate.

Energy experts believe households could face much higher than normal energy bills for years to come, as Russia’s war in Ukraine keeps prices on the global gas markets stubbornly high and at risk of sudden price surges. Analysts at Cornwall Insight have warned they do not expect bills to return to pre-2020 levels before the end of the decade at the earliest.

Jeremy Hunt, the chancellor of the exchequer, vowed that the government would be willing to intervene to protect families from unexpected price rises in the future.

“I don’t want to predict today what might happen to energy prices,” he told Sky News. “All I can say is that I think I have demonstrated in the autumn statement and the spring budget where I extended [government support] by three months, funded in part by a windfall tax on oil companies, that we are willing to do what it takes.”

Georgia Whitaker, a campaigner for Greenpeace UK, said the winter energy crisis “should have been a wake-up call for the government to deliver the nationwide insulation programme and wholesale switch to cheap, renewable powered heat pumps”.

Grant Shapps, the energy secretary, said: “We’ve spent billions to protect families when prices rose over the winter covering nearly half a typical household’s energy bill – and we’re now seeing costs fall even further with wholesale energy prices down by over two-thirds since their peak.”

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