The massive drop in household energy costs expected in April could be short-lived, experts have warned, as the government is urged to ensure that changes will last.
Energy regulator Ofgem is expected to announce on Wednesday that its energy price cap for April to June will drop by £120 from its current level. The substantial drop is driven by the government’s move to cut energy bills by scrapping an energy efficiency programme.
This will “deliver a clear boost to living standards”, think tank the Resolution Foundation found, adding this should “help to keep bills below current levels until at least 2029”.
A new report from the influential unit also credited the progressive effect of the measure, finding the design of the policy will benefit lower-income households the most. Due to this, around a quarter of households (24 per cent) will save more than £200 this year.
The changes will also make the typical energy bill £200 lower than in 2024 in real terms, researchers found, which is a welcome drop after the pressures of the Covid pandemic and cost of living crisis.
However, they added this could be eroded in just three years. They estimated policy costs and investment in network infrastructure mean bills will be just £60 lower on average than today in March 2029, and the end of the government’s discount scheme a month later will add another £55.
This means a “cliff edge” looms, the Resolution Foundation said, as the government will need to decide whether to allow bills to rise or find funding to extend the support. It added ministers should not “wait until the eleventh hour to decide” and should instead set out a durable framework before 2029.
Jonathan Marshal, principal economist at the Resolution Foundation, said: “Next week’s energy price cap announcement will show a significant drop in household bills, largely because of the government’s £6.9 billion energy bill discount.
“The policy is well designed. By reducing electricity unit rates, it supports the shift towards electrification at the same time as delivering savings worth twice as much to the poorest families as to the richest, as a share of spending.
“However, this support is due to end in April 2029. The government should set out a clear and durable framework for deciding which energy policy costs are funded by bills and which through taxation soon, to avoid scrambling for a solution in an election year.”
A Department of Energy Security and Net Zero spokesperson said: “This government is delivering on our promise to take an average of £150 of costs off bills from 1 April. Ofgem will set out the final price cap figure in the usual way next week.
“Tackling the energy affordability crisis is our number one priority – and this is just the start.
“We are getting off the rollercoaster of volatile fossil fuels and onto clean homegrown power which we control, to bring down bills for good.”
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