Posted: Thu 24th Nov 2022

Updated: Thu 24th Nov

Ofgem hikes price cap to £4,279 but its “almost totally meaningless” says Martin Lewis

News and Info from Deeside, Flintshire, North Wales
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Energy regulator Ofgem has announced its quarterly update to the energy price cap for the period 1 January – 31 March 2023.

The price cap is set to rise to an annual level of £4,279 in January 2023, up by around 20%.

But the move is “almost totally meaningless” says Money Saving Expert Martin Lewis.

The energy price cap changes every three months and is rising due to the ongoing high price of wholesale energy.

The price cap level indicates how much consumers on their energy supplier’s basic tariff would pay if the EPG were not in place.

For the first three months of 2023, the energy price cap will increase to an annual level of £4,279 for an average dual fuel household paying by direct debit based on typical consumption, but bill-payers will still be protected by the Government’s Energy Price Guarantee until the end of March 2024, as confirmed by the Chancellor on Thursday 17 November.

There is no immediate action for consumers to take as a result of today’s announcement.

In a post on Facebook, Martin Lewis said:

“The January price cap is almost totally meaningless for consumers bills.”

“I’ve had fellow journos asking me about the huge bill increases predicted. So to stave off any misreporting, let me be explain.”
1) Since Oct household bills’ have been dictated by the Energy Price Guarantee, the Price Cap which mattered before is now mostly irrelevant
2) The Guarantee is set by the govt eg for a home on typical use it’s £2,500 now, rising to £3,000 Apr 23
3) The Price Cap is based on wholesale rates (with a time lag) and dictates what energy firms can charge.
4) When the Cap is higher than the Guarantee (as it is now) the state pays the difference, household bills are still at the guaranteed rate.
5) On typical use the Price Cap’s currently £3,549/yr, so £1,049/yr above the Guarantee, the difference is basically a govt subsidy to energy retailers. The subsidy is likely to increase in Jan
6) If in a hopeful future, the Cap moved below the Guarantee we’d pay the lower rate
7) The reason I say ‘mostly’ irrelevant, is the way the system works, we may see some small regional rate tweaks to the Guarantee on 1 Jan. These are unlikely to be significant enough for most people to notice, as the avg cost will stay the same.
“Of course, while meaningless for consumers, the fact the state is paying means if it rises, (there will be a need for) either bigger borrowing or taxes.”

Rocio Concha, Which? Director of Policy and Advocacy, said:

“The news that the energy price cap will hit £4,279 from January will be hugely worrying for consumers but they should remember that their bills are protected against this price increase by the government’s energy price guarantee scheme – which caps the amount that households can be charged to around £2,500 for the average household until April.

“The energy price guarantee will then rise to around £3,000 for the average household from April 2023 – April 2024. While there is additional support in place for those struggling most, this may still not be enough – particularly if bills remain this high next winter. The government must ensure that as energy prices remain incredibly high, consumers are not left struggling to make ends meet.

“Which? is also concerned that hundreds of thousands of customers on traditional prepayment meters have not yet claimed the government support that is available. Energy firms and the government must work to understand why so many Energy Bill Support Scheme vouchers have not yet been redeemed, and ensure that customers on these prepayment meters – who are more likely to be vulnerable and on lower incomes – are able to access this vital support.”

The next quarterly price cap update will be on 27 February 2023.

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