The retail price cap on domestic energy tariffs will fall by 7% to £1,568 per year, calculated on a putative ‘average’ bill per home’s consumption of gas and electricity, Ofgem announced this morning.
Equivalent to an annual saving of £122, the cut will take effect from July and run for at least three months. The regulator evidences continuing falls in wholesale gas prices as behind its latest cut.
The cap assumes unchanged standing charges amounting to £334 across both fuels, or £369 for clients settling retrospective bills. The controversial billing elements endure, with Ofgem resisting campaigners’ calls for them to be merged into consumption costs.
Suppliers may offer a lower standing charge for their default tariffs under the price cap. But to raise the unit rate above that assumed in Ofgem’s price cap, they need to demonstrate that the overall amount charged to consumers is at or below the total price cap.
For the first time, Ofgem today broke down numbers of all Britain’s domestic customers by the way they pay, and the class of tariff on which they are billed.
As of April, around 28 million customers were on Standard Variable Tariffs (SVT). Of these, around 18 million paid by direct debit and 5 million by standard credit, ie. variable bills settled by customer-controlled payments.
That left around of SVT customers feeding pre-payment meters (PPMs). The total of customers on fixed tariffs stands at 4 million, the vast majority of them not on PPMs.
Observers were split as to whether the tariff reduction would endure beyond September. Supplier E.ON Next was first to respond, announcing a reduced rate on its tracker E.ON Next Pledge’ tariff which could save switchers a further annualised £50 for customers transferring over from July.
But respected analysts Cornwall Insight said enduring volatility in wholesale prices meant were likely to push tariffs up again this winter.
Principal consultant Craig Lowrey called for politicians and Ofgem to continue on their reform consultations around the cap’s design, and work to secure longer term mechanisms designed to speed up delivery of Net Zero and thus of price stability,
“It is clear the cap in its current form is not going to bring down bills to pre-crisis levels”, Lowrey observed.
“However, while the general election is likely to put a halt to any immediate reforms to household energy bills, parties may use this opportunity to highlight how they intend to approach this challenge in the future”.
From infrastructure advocates Britain Remade, director Sam Richards noted: “The prospect of the Energy Price Cap falling …will deliver relief for households that have had to endure eye-watering energy bills for far too long.
“But energy bills still remain far higher than the long-term average”, Richards went on. “The only way to rapidly bring bills down is to turbocharge the building of clean sources of secure domestic energy.
“Whether it is new nuclear power stations, onshore or offshore wind farms or utility scale solar, the time it takes to build the clean energy infrastructure we need is unnecessary, unjustifiable and is holding Britain back.”
Anti-poverty campaigners Citizens Advice said the cut would give households only ‘small comfort’ in the teeth of continuing cost-of-living pressures.
Its chief executive Dame Clare Moriarty noted; “The fall in the energy price cap reduces bills slightly, but our data tells us millions have fallen into the red or are unable to cover their essential costs every month.
“People cannot rely on lower energy prices alone to escape the financial issues they’ve been experiencing. That’s why we need better targeted energy bill support for those really struggling to keep the lights on or cook a hot meal.”
