Ofgem has announced it is lowering its energy price cap - the amount suppliers are able to charge - from the current £4,279 per year to £3,280 for the average household, effective from April 1. The regulator said the reduction of almost £1,000 reflects recent falls in global wholesale energy prices.
However, Martin Lewis is warning millions of households are facing an increase of 20 per cent on their energy bills, despite Ofgem’s reduction. The £3,280 figure indicates how much consumers on their energy suppliers' basic tariff would pay if the UK Government's Energy Price Guarantee (EPG) was not in place.
But customers will pay about 20 per cent more on their bills - approximately £500 - as the UK Government's EPG becomes less generous from the beginning of April, leading to an average bill of £3,000. The consumer champion explained to GMB viewers: “You’re going to pay 20 per cent more in England, Scotland and Wales.”
The founder of MoneySavingExpert.com continued: “Because the cap is still higher than the Energy Price Guarantee, the cap is irrelevant.”
But he did say there is light at the end of this long energy bills tunnel and shared how the latest predictions indicate that from July, the price cap will drop to £2,100.
This would take it lower than the EPG, so households will pay the lower amount. Martin also emphasised how he wrote to Chancellor Jeremy Hunt two weeks ago, asking him not to increase the EPG from £2,500 to £3,000 in April.
Martin said: “It will only likely be in effect for three months. It seems to be an act of national mental health harm to send millions, almost everybody, a letter saying your energy bills are going to go up by 20 per cent again.”
The financial journalist suggested postponing the rise to £3,000 until July as households will be back on the price cap of £2,100 and the EPG will be irrelevant. More than 85 charities are supporting his call for the Chancellor not to increase the EPG to £3,000.
He believes there is now a “good chance” the UK Government will not increase the EPG and is hoping for an announcement to be made soon, preferably within the next week and long before the Budget on March 15.
He explained: “If we wait until the Budget, energy firms will have had to send the letters telling people there’s going to be a rise and then the government will have to send one saying there won’t be.
“And so the announcement should be before the Budget and needs to be within the next week or so to be able to get into that time deadline. But I can’t guarantee it.”
When the upcoming end of the £400 energy rebate scheme - paid in six instalments of £66 and £67 a month - is factored in, the energy cost for households will increase even more. Below is everything you need to know about the Ofgem price cap and how it will affect your energy bills.
What is the Ofgem price cap?
The energy price cap was introduced by the Government in January 2019 and allows suppliers to recoup their costs while making sure consumers do not pay more than they should. It does this by setting a maximum suppliers can charge per unit of energy.
Why is it falling and how much is it now?
From April 1, the energy price cap will be set at an annual level of £3,280 for a dual-fuel household paying by direct debit based on typical consumption, a reduction of almost £1,000 from the current £4,279.
The fall reflects recent drops in wholesale energy prices - the amount energy firms pay for gas and electricity before supplying it to households. The £3,280 figure indicates how much consumers on their energy suppliers' basic tariff would pay if the Government's EPG was not in place.
So what is the EPG?
Despite Ofgem's energy price cap, it is the UK Government's EPG households really need to worry about. Then-Prime Minister Liz Truss announced the EPG - to be introduced from October 1, 2022, and last for two years - after concerns over the effect of a proposed 80 per cent rise in energy prices on households.
The EPG was to reduce the extent of price rises for domestic customers. Under the scheme, the Government sets a maximum average household price for gas and electricity and pays the difference to customers' suppliers.
So what is the problem?
The EPG was originally set at £2,500 for two years from October 2022 to September 2024. However, new Chancellor Jeremy Hunt has already said the EPG will become less generous in April, which means the typical household will pay £3,000 a year.
There are two additional important points here:
- annual bills are not capped
- households using more energy will pay more
The UK Government's extra support of £400, paid in six instalments of £66 or £67 a month to every household to additionally offset rising bills, will stop from April.
In effect, it means the typical annual household bill is set to rise from £2,100 to £3,000 in April, taking into account both the drop in support to households via the EPG and the end of the £400 winter discount on all households' bills.
Is there any good news?
It is worth remembering we are moving into the warmer months, giving households a better chance of being able to cut back on their heating and electricity usage.
Ofgem's dropping of its price cap reflects a significant drop in the wholesale price of energy. If this continues - and all current indications are that it will - prices paid by consumers by the summer will drop for the first time since the global gas crisis took hold more than 18 months ago.
Analyst Cornwall Insight said it expects the price cap to fall further - to £2,153 in July and £2,161 from October.
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