Ofgem lowers price cap by £1000 but average energy bills will still rise by £500

The UK’s energy regulator, Ofgem, has today released an update to the energy price cap, which sets a maximum price for energy suppliers to charge their customers per unit of energy.

The 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 level of £4,279 but energy bills for households are still set to rise by £500.

This update will be effective from 1st April – 30th June 2023.

Ofgem CEO Jonathan Brearley said that 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. I know that for many households this news will be deeply concerning.” He said.

The energy price cap was introduced by the UK government in January 2019, and Ofgem is required to regularly review the level at which it is set.

The cap ensures that energy suppliers can recoup their costs while making sure that customers do not pay more than they should.

The latest update reflects the reduction in the cost of buying and providing energy to customers.

The reduction in the price cap level is a positive sign that the immense pressure seen in the energy markets over the last 18 months may be starting to ease.

Jonathan Brearley, said, “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.”

“If the reduction in wholesale prices we’re currently seeing continues, the signs are positive that the price cap will fall again in the summer, potentially bringing bills significantly lower.”

“However, this may not immediately benefit consumers as the price cap has not yet fallen below the level of the Energy Price Guarantee (EPG).”

“The EPG has been set by the government at £3,000 for the typical bill, which means that consumers will not pay the full level of the energy price cap.”

Brearley has urged those struggling to pay their energy bills to contact their supplier to ensure that they receive all the help and support they are entitled to.

“There is also a case for examining the feasibility of a social tariff for customers in the most vulnerable situations.”

The next quarterly price cap update will be released on 26 May 2023.

Emily Fry, Economist at the Resolution Foundation, said:

“The latest Ofgem price cap is a stark reminder of the lag between falling wholesale gas prices, and falling household energy bills.

“While consumers won’t have to face typical bills of £3,280 this Spring, many are still set to see bills rise by a fifth as government support is scaled back.

“The Chancellor should prevent this coming energy bills spike by maintaining the level of the EPG at £2,500 for a further three months.”

Sharon Graham – General Secretary, Unite the Union said:

“Ofgem’s latest manoeuvres on the energy price cap do next to nothing to ease the pressure on workers and communities already haunted by the arrival of their fuel bills.”

“This out of touch government is clearly preparing to pull the plug on protecting consumers and is totally abdicating any responsibility for dealing with the runaway profiteering of energy companies.”

“A matter of days ago Centrica/British Gas announced its 2022 profits had trebled to more than £3 billion.”

“This year, it’s planning a £500 million share buy back for a bonanza pay out for its shareholders. The British economy is broken for workers – different choices need to be made.”

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

“The price cap is coming down, but not by enough to help people who will face a sharp spike in their energy bills in April when the government withdraws the energy bill support scheme and the price guarantee jumps to £3,000 for an average household.

“This increase will be especially difficult for pre-payment meter customers – who are more likely to be on lower incomes – as they can’t spread these increased costs out evenly over the coming year.

“In the absence of an effective means to target support, the best thing the government can do to support people is to postpone increasing the energy price guarantee to £3,000. For some families, who continue to be battered by high inflation, this will offer an important lifeline to stop them from falling into financial distress.”