Households will be more than £400 a year better off on average from July after the cap on energy bills was slashed following steep falls in wholesale gas and electricity prices.
Energy regulator Ofgem on Thursday set the cap at £2,074, down from £3,280 from April to July. That is well below the £2,500 energy price guarantee put in place by Liz Truss when she was Prime Minister last September when the energy crisis sparked by Russia’s invasion of Ukraine sent market prices spiralling to record levels.
It means that for the average household bills will fall by £426 a year.
The £2,500 guarantee was extended to the end of June by Chancellor Jeremy Hunt in his Spring Budget and will then rise to £3000. However it will effectively be redundant then as bills will be so much lower.
Thursday’s sharp fall in the cap - a mechanism put in place by Theresa May’s government to protect consumers on “default” standard variable tarrifs - is the biggest single easing of the financial pressure on families since the cost of living crisis began in 2021.
However prices are still almost double where they were before the war started. In October 2021, the typical household paid £1,271 a year for gas and electricity.
Forecasters at specialist energy analysts Cornwall Insights have warned they do not expect bills to return to pre-2020 levels “before the end of the decade at the earliest”.
Wholesale prices have fallen dramatically over the winter and spring since they spiked to unprecedented levels last August and September.
Ofgem CEO Jonathan Brearley said: “After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.
“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.
“In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options.”
Dame Clare Moriarty, Chief Executive of Citizens Advice, said: “The fall in the price cap provides some desperately needed respite for households but energy bills will still be nearly double what they were just 18 months ago. That’s unaffordable for millions of households.
“For many, life is getting worse, not better. Year on year we’re breaking records for the number of people struggling with energy debt.
“It’s clear more government support will be needed in the future for struggling households.”
