Although the price cap has been reduced by PS999, households can still expect to see an increase of up to PS500 on their bills starting April.
Ofgem has decreased the maximum amount energy suppliers can charge dual-fuel households from PS4,279 down to PS3,280 starting April 1. The government’s energy price guarantee is also decreasing in generosity. This determines what households will actually pay.
In October, the energy price guarantee was implemented to lower household charges per unit of electricity or gas. The average household’s bills were limited to PS2,500 per year at first. This was based on the cost of a dual fuel (gas and electric) direct debit customer with similar consumption levels if the prices remained constant over a year.
The guarantee will rise by 20% — or PS500 — to PS3,000 starting April 1. This will increase energy bills by the same amount. The annual bills do not have a cap, so households that consume more energy will be paying more.
This increase occurs at the same moment that the PS400 support scheme for energy bills — which was paid in six installments of PS66 or PS67 per month — ends, which will cause even higher energy bills.
Martin Lewis is a personal finance expert who has urged ministers to delay increasing the guarantee to reduce the burden on the most vulnerable households since the 1950s.
He has urged Jeremy Hunt, the chancellor to cancel the PS3,000 increase before March 15’s budget. Three weeks ago, he wrote to the chancellor : “In practice energy companies will need to know more quickly if the planned increase isn’t happening April 1 or they are bound have to communicate with customers that it is.”
The Ofgem cap is currently above the government’s guarantee. With wholesale prices falling, however, it is likely that the cap will fall below the government’s guarantee by mid-summer. According to Cornwall Insight, analysts at the energy market consultancy Cornwall Insight, the cap will fall to PS2,153 by July.
Lewis stated that the rule was that households will pay less if the cap falls below the guarantee. He stated, “So from then on, unless wholesale price rockets again, the energy price guarantee won’t be relevant and we will return to paying the lower price cap price.”
Craig Lowrey is the principal consultant at Cornwall Insight. He stated: “While tumbling caps projections are positive, unfortunately, already-stretched household will not see much benefit before July.”
According to the Resolution Foundation, falling energy prices have led to a drop in the cost of guaranteeing the government’s funds from PS12.8 billion (predicted in November) to PS1.5 billion.
Lewis stated that extra money could be used by people who are struggling to pay their bills for energy. He suggested that this would delay the April rise. This will be more costly than not doing it. He said that it would cost the government significantly less than what it had expected to spend.
According to the Treasury, receipts from windfall tax imposed on energy producers will be lower than anticipated. Although the Office for Budget Responsibility predicts that receipts will be PS7billion lower, Treasury sources claim that it is closer to PS12billion.
Jonathan Brearley, chief executive of Ofgem, stated that although wholesale prices have dropped, the price cap has not fallen below the level planned for the energy price guarantee. According to current policy, this means that bills will increase again in April. This news is going to be very concerning for many households, I’m sure.
“However, today’s announcement reflects a fundamental shift in wholesale energy costs for the first time since before the gas crisis. While it won’t make a difference immediately to consumers, it’s a sign of some of the enormous pressure that we’ve witnessed in the energy markets in the past 18 months starting to ease. If wholesale prices continue to fall, there are signs that the price cap could drop again this summer, potentially making bills much lower.
Chief executive of Citizens Advice, Dame Clare Moriarty said that the number of people who can’t afford their energy bills would double.
She said: “On average, for most people, we’re going see a PS900 rise in people’s bill. We know this is not sustainable for many people. According to our estimates, the number of people who can’t afford their energy bills could double.
“So, we will go from one in ten to one in five people. This is a large number of people. We believe that the government must keep the energy price guarantee at PS2,500.