On paper, a £426 reduction on your energy bills sound like a step in the right direction after nearly two years of high costs to keep your home running. But how much will the new Ofgem price cap announced this week REALLY cut your energy bills by?
Based on the difference between the current Energy Price Guarantee (EPG) of £2,500 and the new price cap of £2,074 for direct debit customers, the average household should save £426 a year, or around £36 per month, from July.
But the reality is that most families will save just a few pounds a month because the £400 Energy Bills Support Scheme (EBSS), which subsidised bills from October-March, has come to an end, with no sign of a repeat for winter 2023. The EBBS meant that the average household paid £2,100 (£2,500 EPG - £400 EBSS) - just £26 a year more than the new price cap.
Read more: Warning that prepay energy customers need to act soon to get new price cap prices
The next price cap will be announced in August and kick in on October 1, and assuming predictions are accurate, the average household will continue to pay almost double the rate for their gas and electricity than before costs started to soar in late 2021. Before then, the typical household paid £1,271 a year.
The Ofgem price cap is expressed as an annual figure for what the regulator deems is average use for a household, which is 2,900 kWh of electricity and 12,000 kWh of gas in a year. On that basis, the average family will be paying £172.83 per month from July, a saving of just over £2 a month compared to now, although the actual saving depends on how much energy you use, as the price cap is a cap on the tariff you pay, not your actual bill. Use more than the average household and you'll pay - and save - more.
Charities have warned households not to expect big drops in their energy bills this winter. Simon Francis, a coordinator at the End Fuel Poverty Coalition, told The Guardian: “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.” and fuel poverty campaigners at National Energy Action have warned that most households are unlikely to feel any better off, and said that about 6.5 million households will remain in fuel poverty despite the lower rate.
Households also have to grapple with predictions that energy bills will remain at around £2,000 a year for the rest of 2023. Experts believe the average price-capped energy bill will stay at around £2,000 a year for around 12 months - the furthest forecast available. Analysts at Cornwall Insight believe the price cap will be £1,975.70 a year from October to December 2023, then rise to £2,044.96 from January to March 2024.
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Jonathan Brearley, the chief executive of Ofgem, said that households were “unlikely to see prices return to the levels we saw before the energy crisis” in the medium term. "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," he said. "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."
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