Pressure is mounting on the chancellor, Jeremy Hunt, to postpone a looming cut in support for household energy costs as consumers face an increase in their bills from April – despite a fall in the industry price cap of almost £1,000.
The energy regulator for Great Britain, Ofgem, said on Monday that its cap on the amount suppliers can charge for energy for average dual fuel, direct debit customers would fall by 23% for the three months from 1 April to £3,280, from £4,279 for the January to March quarter.
Consumers will not actually pay this figure as the government’s energy price guarantee and its £400 discount scheme subsidise household bills, keeping the price for a typical household at £2,100 a year. However, from April the price guarantee will become less generous and the discount will be withdrawn, meaning the typical annual bill will rise to £3,000.
Hunt faced renewed calls on Monday to postpone the cut in support.
The consumer campaigner Martin Lewis and more than 80 charities have urged the chancellor to keep support in place for a further three months until July.
Wholesale gas prices have fallen sharply in recent months but the drop is yet to feed through into household bills because suppliers buy their energy months in advance. As a result, the price cap is expected to fall to about £2,100 from July for the remainder of the year, meaning the government would not have to subsidise bills and household energy costs would come down.
Ofgem’s chief executive, 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.”
Brearley said the regulator was studying the feasibility of a social tariff for vulnerable customers with “urgency”.
The significance of Monday’s announcement is that the Ofgem cap, which limits what suppliers can charge per unit of energy, is used to calculate how much the government will pay energy suppliers to limit typical bills to £3,000.
As long as the level of the price guarantee is lower than the Ofgem price cap, the government will pay suppliers the difference to cover the cost of buying wholesale energy at prices that have been inflated by the war in Ukraine.
The Liberal Democrat leader, Ed Davey, said: “The Conservatives’ plan to hike energy bills in April will come as a hammer blow to families already struggling with soaring mortgages and rents, shopping bills and tax rises.”
The Labour shadow climate secretary, Ed Miliband, said his party would use a “proper windfall tax [on oil and gas firms] to stop prices going up in April” if it were in power.
Holly Holder of the Centre for Ageing Better said keeping the guarantee at £2,500 would be a “vital short-term intervention” and called for a social tariff to be implemented before next winter.
Office for National Statistics figures released on Monday showed that, in the past two weeks, 5% of adults said they or their household had run out of food and could not afford to buy more.
The Treasury declined to comment on the fresh calls for the cut in support to be postponed. Hunt has previously said he does not think the government has the “headroom to make a major new initiative to help people”. A government spokesperson said it is “committed to helping people with rising costs”.
Suppliers are obliged to write to customers a month before a price rise, meaning letters are expected to go out this week.
Lewis told Good Morning Britain that allowing letters to reach customers telling them their bills were going up would be “an act of national mental health harm”.
The consultancy Cornwall Insight has said that if the guarantee were to increase to £3,000 as planned, the cost to the government would be £26.8bn, while at £2,500, the cost would be £29.4bn.
Ofgem said that from 1 April, the electricity price cap per unit would fall from 67p a kilowatt hour to 51p, and a 53p-a-day standing charge. For gas, the unit cost will fall from 17p to 13p per kWh, with the standing charge up 1p to 29p a day.
About 4 million prepayment meter customers will pay an additional £45 a year, as energy companies say they cost more to serve. The disparity between prepay and direct debit customers has been questioned amid the scandal over forced installation of prepayment meters.
For customers who pay via cheque or cash, the cap has fallen by £1,051 from £4,533 to £3,482, meaning they pay about £200 more than direct debit customers.
The cost to bill payers of transferring customers over from 28 suppliers that went bust during the energy crisis, excluding Bulb, fell from £61 to £19 under the new cap calculation.
The cap is calculated on a typical household’s energy use and consumers may still pay more than that if they use more energy.
