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Levi Winchester & Aaron Morris

Household energy bills to rise by £500 in April - despite Ofgem price cap falling by £1,000

Energy regulator Ofgem has announced that its official price cap will decrease by almost £1,000 as of April, but millions of UK households will still see rises of £500 in their energy bills.

The body has confirmed that its cap will drop from £4,279 a year to £3,280 for the time period spanning April to July for dual fuel direct debit customers - mainly thanks to falling wholesale prices.

However, thanks to the Government's Energy Price Guarantee - which will see a rise of £500 from April, from £2,500 a year to £3,000 - bills will go up in the region of 20% for the average UK billpayer.

Read more: Over 900,000 homes to benefit from £400 Government energy bill boost from today

The Mirror reports hand in hand, the £400 energy rebate scheme - paid in six instalments of £66 and £67 a month - is coming to an end this month. If you factor in the loss of the rebate scheme, this means the energy cost for households will increase even more this spring.

Ofgem CEO Jonathan Brearley said: “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.“

In a glimmer of hope for households, Mr Brearley said energy bills could become potentially lower in the summer 'if the reduction in wholesale prices we're currently seeing continues' at the same rate, but he warned: “Prices are unlikely to fall back to the level we saw before the energy crisis.

"Even with the extensive package of Government support that is currently in place, this is a very tough time for many households across Britain.”

What's the difference between the Ofgem price cap and Energy Price Guarantee?

The Ofgem price cap and Energy Price Guarantee both limit what you pay for each unit of gas and electricity you use, plus the maximum daily standing charge. It applies if you're on a standard variable rate (SVR) tariff, which most people are now on due to a lack of cheaper fixed rate deals.

But crucially, there isn’t a total amount on how much energy you pay - the headline figures are used to illustrate what someone with typical usage can expect to pay over a year. You can end up paying more or less, depending on how much energy you use.

For example, if you live in a well-insulated one-bedroom apartment, your bill will likely be much less than the headline figures - but you could end up paying more if you’re in an old, draughty house. How you pay for your energy also has an impact on what you’ll pay.

Those who pay by prepayment meter or on receipt of bill typically pay more than someone paying by direct debit. The Energy Price Guarantee was brought in last October to effectively replace the Ofgem price cap due to record high energy prices.

It sees the Government subsidise energy bills based against the difference between the Energy Price Guarantee and the Ofgem price cap. At its current level of £2,500, and the price cap being at £4,279, this saves the average energy customer around £1,779 per year.

But with the price cap falling, and the Energy Price Guarantee rising to £3,000 from April, the amount being covered by the Government dramatically reduces. The Energy Price Guarantee will last for one year, up until April 2024, and covers gas and electricity bills in England, Wales and Scotland.

Why has the Ofgem price cap fallen?

Wholesale prices have started to fall dramatically compared to last summer, with analysts predicting they could be falling faster than expected this year. This has sparked calls from campaigners including Martin Lewis for the Government to axe its planned Energy Price Guarantee from April.

All eyes will be on Chancellor Jeremy Hunt on March 15, when he announces his Spring Budget, to see if any changes to the Energy Price Guarantee are announced. Mr Hunt previously told the BBC he did not think the Government had the "headroom to make a major new initiative to help people".

When will energy prices fall?

Cornwall Insight said it expects the price cap to fall further, to £2,153 in July and then hit £2,161 from October. This will be below the Energy Price Guarantee, so will feed through to lower bills for customers and reduce the Government's part of the bill to zero.

But even these bills are around double where the price cap had been before the energy crisis. The Ofgem price cap stood at £1,277 in October 2021, before it rose to £1,971 in April 2022.

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