The retail price cap for domestic electricity & gas will be cut to £2,074 per year starting in July, regulator Ofgem confirmed this morning.
The move stands to save consumers a notional £426 annually, even as the cap replaces the Energy Price Guarantee, the government’s emergency subsidy. Since October that has pegged a hypothetical average household’s annual bill at £2,500 a year.
Ministers and the regulator stressed that the cap’s reduction will mean customers on default tariffs paying less for energy for the first time since global gas prices rose in late 2021, driven by world demand rebounding after Covid lockdowns. Sanctions on Russian gas after the February 2022 Ukraine invasion further tightened the upward screw.
Falling wholesale prices of gas have enabled the regulator’s decision.
It also heralds likely renewed competition between suppliers, offering competitive fixed price deals for the first time since the energy crisis began.
Business and enterprise users remain cushioned only by the Energy Bills Discount. Its support was revised downwards in April from the more generous Energy Bill Relief scheme.
At its peak, Ofgem’s domestic cap had stood at £4,729. With the new cap still more than double its pre-Covid levels, the regulator warned though that many households would struggle to meet even lower bills.
Ofgem chief executive Jonathan Brearley said more focus will be needed for government, the regulator and the industry to support the most vulnerable groups this winter.
He added: “After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction.
“However, we know people are still finding it hard, the cost-of-living crisis continues and these bills will still be troubling many people up and down the country. Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.
In the medium term the Ofgem boss foresees no return to retail energy prices paid before the crisis first bit in 2021.
“We believe it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups.
Anti-poverty campaigners stressed that the reduction left many homes still facing eat-or-heat dilemmas every day. The charity National Energy Action said it would still leave 7.5 million households in fuel poverty, unable to heat homes adequately. In October 2021, that figure stood at 4.5 million.
Citizens Advice, identified in law as representing consumers on energy prices, was equally wary. Its head Dame Clare Moriarty pointed out the cap’s cut to £2,074 is nearly double what average domestic bills were as recently as 18 months ago.
“The fall in the price cap provides some desperately needed respite”, said Moriarty. “But energy bills will still be unaffordable for millions of households”.
“For many, life is getting worse, not better. Year on year we’re breaking records for the number of people struggling with energy debt. It’s clear more government support will be needed in the future for struggling households.”
