Approximately 27 million households in Great Britain will benefit from lower energy bills as the country’s energy regulator, Ofgem, reduces the price cap on gas and electricity to £2,074 from 1 July. However, the cancellation of several government schemes aimed at making bills more affordable means that most households will not see significant relief. Experts warn that energy costs could remain at unprecedented levels, leading to fuel poverty for millions of households, until the end of the decade.
The impact of Ofgem’s price cap is limited to standard energy tariffs, affecting about 27 million households. The cap was set at £4,279 earlier this year but has since been reduced to £3,280 in April. However, the full effect of falling energy prices is not felt due to the government’s energy price guarantee (EPG) introduced over the winter. The EPG ensured that the annual energy bill for a typical household did not exceed £2,500, well below the Ofgem cap. Additionally, the government provided a £400 payment distributed monthly from October to April to further reduce costs. Now that these schemes have ended, the wholesale price drop allows Ofgem to lower the cap, resulting in average annual bills remaining the same for most households from July.
Energy experts predict that Ofgem’s energy price cap, adjusted quarterly, will remain at similar levels for the rest of the year. Bills are expected to stay high throughout the decade due to the persistently elevated global energy markets caused by Russia’s war in Ukraine. Cornwall Insight, a leading energy consultancy, forecasts a drop in the price cap to around £1,870 in October, followed by a slight increase to just over £1,900 from January next year. Despite these predictions, Cornwall does not anticipate bills returning to pre-pandemic levels in the foreseeable future.
The positive news is that energy suppliers may start offering deals priced below the price cap to attract new customers as the switching market begins to recover. Cornwall expects fixed-rate deals to return tentatively from the third quarter of this year. However, it’s important to note that Ofgem’s cap limits the price per unit of gas or electricity used but does not cap the total bill. Therefore, households using more than average will pay more than the cap.
The government has replaced its broad EPG and £400 payment for all households with targeted payments for the most vulnerable. This includes a £900 payment for those on means-tested benefits, £300 for pensioners, and £150 for disabled people. Unfortunately, approximately 1.7 million households in severe fuel poverty, primarily in London, the north-east, and the north-west, will not receive this additional help as they are not registered for certain benefits. Researchers at the University of York estimate that these households include 688,000 fuel-poor families with children. Additionally, around 480,000 households using communal heating systems, such as residents of council-owned tower blocks, are not protected by the Ofgem cap and face a 350% rise in heating bills. These operators can apply for government assistance, but the system has been criticized for not always passing on the taxpayer-funded discount to consumers.
Ofgem’s energy price cap does not apply to businesses, charities, or public sector organizations. The government has introduced a scheme offering eligible firms a discount on the wholesale price of energy. Energy-intensive businesses, such as manufacturers, receive greater discounts. This support scheme began on 1 April and is expected to provide up to £5.5 billion of support over a year, significantly less than the £18 billion in savings available to businesses through the previous aid package.
To assist struggling households, there have been calls for a social energy tariff to be implemented for economically vulnerable individuals. This tariff would set energy costs well below normal prices and already exists in the water sector. Ofgem has also urged utility companies, consumer groups, trade representatives, and government agencies to collaborate on creating a universal register of vulnerable individuals. This register would help prevent households from slipping through the cracks and follow a “tell us once” principle where vulnerable families inform one organization about their circumstances, which can then be shared with other agencies and suppliers. However, it is unlikely to be implemented before winter.
Ultimately, the UK can protect itself from future gas market price surges by reducing reliance on fossil fuels. Green groups, including Friends of the Earth and Greenpeace, have called on the government to invest in renewable energy, home energy-efficiency upgrades, and the widespread adoption of electric heat pumps, learning from the lessons of the winter energy crisis.
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