The UK energy regulator Ofgem has lowered the energy price cap by almost £1,000 for a typical home, but consumers will still end up with higher bills from April as the government reduces subsidies to households.
The price cap, which governs the amount paid for gas and electricity bills for typical usage, will fall to £3,280 from April having previously stood at £4,279 for the January to March period.
The reduction reflects the significant decline in wholesale gas and electricity prices in recent months.
The government’s energy price guarantee, which was put in place last October to protect consumers from last year’s increase in wholesale prices, has limited typical bills to £2,500 since October but is set to rise to £3,000 from April.
Bill payers have also benefited from a further £400 reduction from the government in bills, meaning most will see their annual cost for the April to June period rise from £2,100 for typical usage to £3,000.
The price cap still matters as it determines the amount of subsidy the government has to provide, which is ultimately paid for by taxpayers.
Energy analysts are forecasting that from June the price cap will fall below the level of the government’s price guarantee, at which point the average bill will switch to paying that amount.
“Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means, that on current policy, bills will rise again in April,” said Ofgem chief executive Jonathan Brearley.
“However, 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 make an immediate difference to consumers, it’s a sign that some of the immense pressure we’ve seen in the energy markets over the last 18 months may be starting to ease.”
Jeremy Hunt, the UK chancellor, has come under pressure to maintain government support at a level that caps bills at £2,500 until the summer, particularly given the cost of subsidising bills has come in lower than initially expected as wholesale prices have fallen.
But the Treasury has indicated it does not want to expose itself to a rebound in wholesale prices and prefers to push ahead with the plan of tapering support.
Citizens Advice said on Monday it estimated that the number of households struggling to afford their bills would double from one in 10 to one in five.
“Without further support from the government, this April will spell catastrophe for millions of households,” said Citizens Advice chief executive Clare Moriarty.
“The government must keep the EPG at its current level of £2,500. Recent drops in wholesale prices mean they have the headroom to do this. The alternative is millions more people unable to keep their house warm and keep the lights on.”