Ofgem has lowered the cap of typical household bills to below £2,000 for the first time since Russia invaded Ukraine.
In the three months from Oct. 1, the energy price cap will be £1,923, down from the current level of £2,074, for customers paying via direct debit.
A typical prepay customer can expect to pay £1,949 per year, the regulator said.
The headline numbers are calculated by using the average amount of energy a household would consume, which is 2,900 kilowatt hour (kWh) of electricity, 12,000 kWh of gas, or 4,200 kWh for multi-register meters. Households that use more energy will pay more.
But not all households will pay less directly from their pockets. According to the Resolution Foundation, for a third of households, the bill will in effect be higher this winter compared to the last because of a rise in the daily standing charge and the end of a one-off 400 universal energy bill rebate.
Ministers are facing fresh calls to introduce a social tariff that subsidises bills of vulnerable households. An energy minister said the government “will consider any and all options.”
Prime Minister Rishi Sunak said the announcement is “really good news” for families up and down the country.”
He said ministers have taken“decisive action” by imposing a windfall tax on energy companies to help fund targeted energy support packages, and are working night and day to bring down inflation so that the money in people’s pockets can go further,” he told the BBC.
Asked about targeted support for the most vulnerable, the prime minister said that’s the approach the government is taking.
“It’s really important that we do target our support to the most vulnerable in society and that’s what we’re doing,“ he said, ”So the national living wage has gone up by around £1,400 for those on the lowest earnings. Pensioners are receiving an extra £300 this winter alongside their winter fuel payment and everyone on Universal Credit is receiving £900 in direct cost-of-living support because I want to make sure the most vulnerable in our society do get that extra help.”
Labour’s shadow climate change secretary Ed Miliband said the Ofgem announcement demonstrates “the scandalous Tory cost-of-living crisis is still raging for millions of people” as bills are still “significantly higher than they were only three years ago.”
He said the Conservatives “continue to side with the oil and gas companies” by refusing to “fix the gaping loopholes in the windfall tax or make the sprint we need for clean power, keeping the onshore wind ban and failing to insulate homes,” and promised Labour would “act to close loopholes and bring in a proper windfall tax on oil and gas giants” and “make Britain a clean energy superpower.”
The Liberal Democrats’ climate and energy spokesperson Wera Hobhouse said while the lowering cap comes as “a relief,” the fact that bills will still be “almost double what they were two years ago” reflects “a shocking failure on the part of Conservative ministers.”
Social Tariffs
According to the Resolution Foundation, a progressive think tank that focuses on the standard of living, the end to the £400 universal energy subsidy and the rise in the daily standing charge meant households that use about 20 percent less energy than the average will see their bills rise this winter compared to the last.It also said the bill will be higher this winter for a third of households in England and almost half of England’s poorest tenth of households.
Jonathan Brearley, the chief executive of Ofgem, is among those who support a social tariff, telling ITV’s “Good Morning Britain” programme that he encourages the government to “look at a system of pricing regulation to see if there are better alternatives” including social tariffs.
Asked by Sky News if the government should reintroduce subsidies, Jonathan Brearley said it would “of course” be helpful, but ministers will have other considerations such as “the fiscal position, ... the tax position, and all the other trade-offs they’ve got to make.”
Also speaking to Sky News, nuclear and networks minister Andrew Bowie said the government will “consider any and all options moving forward.”
Ofgem’s energy price cap, which was introduced in 2019, limits the price retailers are allowed to charge for a unit of energy.
The cap was previously reviewed every six months, but Ofgem had to change the interval to three months last year owning to volatile wholesale prices.
It came after an array of smaller energy suppliers went bust in 2021 as wholesale prices shot up because the demand and supply of energy were thrown off-balance by COVID-19 lockdowns. The supply shortage was also compounded by Russia’s invasion of Ukraine, which further drove up global energy prices.
The price cap increased by 235 percent in nine months, from £1,277 at the beginning of last year to a peak of £4,279 in the first quarter of this year, although the worst direct impact on households was cushioned by the government’s energy price guarantee.
The package, funded by public borrowing, limited a typical household bill to £2,500 per year and filled the gap between that and the Ofgem Cap.
A £400 payment was also given to households, effectively limiting the bill to £2,100.
The £2,500 guarantee has ended as of July 1 but the policy will remain in place until March 31 next year to cover bills in case they jump back up to over £3,000.
