Ofgem is lowering its energy price cap by 17 per cent from the current £3,280 per year to £2,074 for the average household in Scotland, England and Wales from July. The regulator announced its latest energy price cap on Thursday as campaigners warned consumers are likely to feel little relief with bills remaining well above pre-pandemic levels.
Consultancy firm Cornwall Insight said despite the drop, households should also expect their energy bills to remain stubbornly high through the coming winter, at almost double the rates paid in 2020, and remain above pre-pandemic levels for the rest of the decade. Following the announcement, Ofgem chief executive Jonathan Brearley said more focus will be needed for UK Government, the regulator and the industry to support the most vulnerable groups this winter.
The lower cap will replace the UK Government’s Energy Price Guarantee (EPG) from July 1, which currently limits the typical household energy bill to around £2,500. It means the average household on typical usage will see their annual bill drop by £426.
All households across Great Britain also received the £400 Energy Bills Support Scheme discount (£66/£67 per month) from the UK Government to offset soaring prices over winter 2022/23. But this support is not available for the winer ahead.
Mr 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.”
The price cap has rocketed from £1,162 a year for a typical household in August 2021 to its current level of £3,280, having briefly reached £4,279, with the pandemic and Russia's war in Ukraine both pushing up wholesale prices.
The cap does not set the maximum a household will pay for their energy but limits the amount providers can charge them per unit of gas or electricity, so those who use more energy will pay more.
The standing charge has not charges and will still cost households around £300 a year just to be connected to their gas and electricity supplier.
Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit (ECIU), said: "Whilst the falling price cap is a relief for households, this gas crisis will linger, with wholesale price forecasts suggesting that the average household energy bill might not get below £1,700 a year for the rest of this decade - that's around £600 (about 50%) above where it was before the gas crisis.
"If we don't get on with insulating homes, installing heat pumps and building more renewables, gas demand will remain high, and that means bills will too."
Energy Saving Trust chief executive Mike Thornton said: "The UK Government must not lose the acute sense of urgency needed to address the root causes of the energy and climate crises for the long-term while ensuring that proper support remains in place for those that need it now.
"Energy prices are still around twice as high as they were just over two years ago. Despite setting a target of 15% reduction in energy demand by 2030, the UK Government has not set out a plan about how it will be delivered.
"They need to drive forward the systemic changes required to minimise bills, cut carbon and increase energy security for the long term. We cannot afford to wait any longer for the urgent action required."
John Palmer, Director of Policy and Communications at Independent Age said: “Today’s announcement from Ofgem will not ease the worries of struggling older people. With energy bills still double what they were in 2020, the price of heating your home and keeping the lights on is still unmanageable for many in later life.
“Every day, we hear from older people terrified about how they will afford essentials. They’ve been trying to cope with sky-high energy and food costs for more than a year. Tragically, many are forced to make dangerous choices like skipping meals, not using their lights and turning off their heating in winter, all of which are especially unsafe for those over 65. We are also very concerned about pensioners on a low income with a disability, many of whom will have additional energy needs to manage their condition and are forced to put their health in danger.
“With more than 2 million older people already living in poverty, the government must do everything it can to help older people facing financial hardship with their energy bills.”
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