The Energy Price Guarantee (EPG) will be extended for a further three months from April to June at its current level of £2,500, based on average typical use.
It means millions of households will save £160 on energy bills, according to the Treasury.
The EPG had been due to rise to £3,000 (again, based on average typical use) in April, but falling energy prices mean that the current level can be extended to 'bridge the gap' until costs fall below the cap.
Prime Minister Rishi Sunak said: “We know people are worried about their bills rising in April, so to give people some peace of mind, we’re keeping the energy price guarantee at its current level until the summer when gas prices are expected to fall.
“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”
The EPG limits the unit cost of energy, in the same way pre-existing Ofgem energy price cap does. It is the maximum price per kilowatt hour (kWH) energy firms can charge you for the gas and electricity you use, plus standing charges.
It means there isn’t a total limit on how much your bills can cost - the more energy you use, the higher your bills will be.
Chancellor Jeremy Hunt said: “High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.
“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.”
Gareth Kloet, Go.Compare’s energy spokesperson, said it was good news for households: “In February, the Energy Price Cap dropped slightly for the first time in over a year, but at its current level – of £3,280 – it is still significantly higher than the EPG at £2,500. This means that for the next three months while the EPG remains in place, households are protected against any further rises to their energy bills."
The Spring Budget today is also set to confirm other reforms such as childcare for one and two year olds, an increase to the pensions lifetime allowance and fuel duty freeze.
What is the Energy Price Guarantee?
Last year, the government introduced the EPG to limit the average bill to £2,500 - it was deemed necessary to intervene to stop bills rocketing to over £4,000 under the price cap.
The EPG limits the price suppliers can charge customers for units of gas - in the same way pre-existing Ofgem energy price cap does - and applies to customers on standard variable tariffs.
But it means there isn’t a total limit on how much your bills can cost - it is always the case that the more energy you use, the higher your bills will be.
From 1 April the EPG was set to go up to £3,000 but Chancellor Jeremy Hunt will cancel that decision and keep it at £2,500.
What is the energy price cap?
The energy price cap acts to ensure energy suppliers do not overcharge their customers. From 1 April the it will be set at an annual level of £3,280.
It means that the EPG is currently cheaper - and that is the rate that energy firms charge households.
The cap changes every three months and predictions suggest that by July, the price will be cheaper than the EPG.
If the cost of wholesale energy continues to fall, suppliers could soon offer customers cheaper fixed energy deals.
According to analysis by comparison site Uswitch, households could soon have access to fixed deals between £2,200 and £2,500 - this is less than the current EPG of £2,500.
A fixed rate deal as low as £2,200 a year for your energy may sound good - but there’s lots to consider before you decide. We explain why.
Further energy reading
- Energy suppliers have hardship funds to help their customers in need.
- We have tips on how to cut your energy usage.
- You may also find our article on unfair direct debit increases useful. See how The Money Edit helped one reader bring her direct debit down after her energy firm increased it from from £117 to £369.
