Martin Lewis has explained how next week's energy price cap announcement will affect household bills.
Analysts have predicted that energy bills will rise by an average of £500 a year despite an expected reduction in Ofgem’s price cap. The energy regulator is expected to announce on Monday (February 27) that it will drop its cap on the amount energy suppliers are able to charge by around £1,000 to £3,295, effective from April 1, according to the latest forecast from energy consultancy Cornwall Insight.
However, customers will pay about 20% more on their bills – approximately £500 – as the Government’s additional support in the form of the Energy Price Guarantee will be scrapped from April. In a series of tweets, the Money Saving Expert explained what this means for households.
READ MORE: Energy bills could rise by £500 despite price cap being brought down
He has also urged the government to postpone the energy bill increase until July. Martin explained: "The energy price cap (Cap) is set by Ofgem based on wholesale rates - those energy retailers pay. Until Oct 2022 solely it dictated the max standing charge & unit rates firms could levy. And as in recent times all firms charge near-enough the max, it set the price we paid.
"Then in Oct, the Govt introduced the Energy Price Guarantee (EPG), set to last til April 24, which means if the Cap is very high (as it is) the govt reduces what we pay, by subsidising it. Yet the rule is, if the Cap drops below the EPG, we will then pay the lower amount. In Apr, the govt plans to increase what we pay under the EPG by 20% And while wholesale prices have dropped a lot, as the Cap's time lagged, tho the April Cap will drop, it'll almost certainly still be above the EPG. So bills (eng, scot, Wales) will still rise avg 20%.
"Yet its very likely from July, the Cap will be lower than the EPG at its current level (never mind if it rises 20%) so from that point, unless wholesale prices rocket again the EPG will be irrelevant and we will go back to paying the lower Cap price. Which is why it seems especially futile to subject people to the financial and mental health damage of a 20% rise for three months, especially as the EPG will cost many £bns less than originally thought."
He concluded: "NB The one impact of the April price Cap change is while the overall level is based on the EPG, the cap can change the balance of cost between - DD and prepay & pay in receipt of bills - The (already too high) standing charge & unit rates. We'll be monitoring this.
"PS the letter I wrote to the Chancellor, which you can see in my past tweets, and is now supported by nearly 80 major charities, asks him to postpone the EPG rise until July. Which as you'll understand from the above likely means the rise will never hit bills in practice."
The Government's £400 energy rebate scheme began in October, paying out six instalments of £66 and £67 a month to help households with energy bills. Meanwhile Ofgem’s price cap is currently set at £4,279 per year for the average household, meaning the Government has probably been paying about £1,779 per year to energy suppliers on average for every household they serve between September and March.
The predicted fall of the Ofgem price cap to £3,295, and the rise of the energy price guarantee level to £3,000, means the Government will be paying just £295 per household per year from April to June. Cornwall Insight said it expects the price cap to fall further, to £2,153 in July and then hit £2,161 from October.
This will be well below the price guarantee, so will feed through to lower bills for customers and reduce the Government’s part of the bill to £0. Even these bills are around double where the price cap had been before the energy crisis.
READ NEXT:
