Ofgem has reduced the amount energy suppliers can charge households, but bills will still rise in April as government assistance wanes.
The announcement by Ofgem does not directly affect what consumers pay per unit of gas and electricity, but it does reduce the costs that the government must bear.
In April, the typical annual household charge will increase to £3,000.
Campaigners argue that the increase should be halted because Ofgem’s new limit reduces the cost of support.
In April, the typical annual household bill will increase from £2,100 to £3,000. This is due to the Energy Price Guarantee (EPG) becoming less generous and the end of a £400 winter discount on all bills.
Currently, the government compensates energy suppliers for the difference between the guarantee and the limit imposed by Ofgem.
The energy price cap was £4,279 in January. But on Monday, Ofgem announced that it will decrease to £3,280 in April due to falling wholesale prices.
TUC general secretary Paul Nowak said: “The cost of energy is out of control. The government must reverse the April increase. With wholesale gas prices falling, ministers have no reason not to intervene.”
Emily Fry, the economist at the Resolution Foundation think tank, stated, “While consumers won’t confront typical bills of £3,280 this spring, many will still see bills rise by a fifth as government support is reduced.”
Although the policy was under review, Chancellor Jeremy Hunt previously told that he did not believe the government had the “capacity to launch a major new initiative to assist people.” Ministers also noted that broader support, such as an increase in benefit payments in April, will assist individuals.
How much you will pay
A household in England, Wales, and Scotland using a typical quantity of gas and electricity pays £2,500 annually for energy under the government guarantee.
Without government assistance, that annual bill would have been £4,279 since January.
The chancellor has already stated that the EPG will be less generous in April, costing the average household £3,000 annually.
Without the guarantee, the charge would have been £3,280 from April to July, according to Ofgem.
Jonathan Brearley, chief executive officer of Ofgem, stated that while April’s bill increase was “deeply concerning” for many people, there was optimism for the future.
“Today’s announcement reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won’t have an immediate impact on consumers, it’s a sign that some of the tremendous pressure we’ve seen in the energy markets over the past 18 months may be beginning to ease,” he said.
“National act of damage”
The EPG began in October of last year and will continue until April 2024. Falling wholesale prices mean the potential cost to the government could be billions of pounds less than initially thought. But still totaling just under £30bn.
Such figures were and could still be extremely volatile. However, the figures have prompted dozens of charities and activists to demand that the government reverse its April proposal to increase the average annual bill from £2,500 to £3,000.
The term “ecosystem” refers to a group of people who work in the construction industry. The same appeal has been made by Labour.
The Liberal Democrats have gone further and advocated for a reduction in energy costs.
The government guarantee, like any energy price restriction, does not limit the total bill. It restricts the cost per unit of energy.
This winter, the government discounted everyone’s expenses by an additional £400, but this assistance expires in April. In Northern Ireland, where the market is more complicated and many households use heating oil, lump sum payments have also been offered.
People who pay for their energy by cash or check upon receipt of a bill currently pay approximately £250 annually more than those who pay monthly via direct debit. Beginning in April, this difference will be reduced to approximately £200.
Ofgem has stated that suppliers charged more for these customers because they were more likely to miss payments.
Due to higher fixed costs, customers with top-up prepayment meters will also have an annual bill that is approximately £45 more expensive than the average direct debit customer starting in April.
