Energy bills unlikely to be affected even after Ofgem announces a new price cap.
Ofgem has announced that it is cutting the energy price cap – but will consumers see these changes reflected on their household bills?
The UK’s energy regulator, Ofgem, has announced that it will be reducing the cap on gas and electricity to £2,074 in July 2023. While this is welcome news after months of climbing energy costs, campaigners have warned that this drop is not likely going to provide much relief to struggling households.
What are the conditions of the energy price cap?
The energy price cap is the rate most consumers pay on standard energy tariffs. Ofgem limits the rate suppliers can charge people for each unit of gas and electricity.
It is important to remember that the £2,074 cap, which will last for three months starting on July 1, is not the maximum a household will be required to pay for their energy. Instead, it limits the amount providers can charge them per unit of gas or electricity.
This means that those who use more energy will therefore be required to pay more.
On the surface, the cut of the price cap sounds like a substantial change, and it is.
The price cap saw a remarkable increase in August 2021, rising from £1,162 to £3,280.
Highs of over £4,000 were seen after both the pandemic and Russia’s war in Ukraine drove up wholesale price. When considering this, the reduction to £2,074 is a substantial one.
Why, then, will households not feel the benefits of such a drastic cut?
Consumers have been partially shielded from the previous rise in energy price cap due to the Government’s Energy Price Guarantee.
The government's Energy Price Guarantee was introduced in April 2023 and limited the annual energy costs to £2,500.
This means that annual bills are only falling from £2,500 to £2,074.
Similarly, the Government provided a winter discount to every household which amounted to £400 divided into equal payments between the months of October and April.
Essentially, these numbers mean that people will be paying the same amount for their electricity and gas as they were last winter.
MoneySavingExpert, Martin Lewis, told BBC Radio 4: “For every £100 you pay now, you will likely be paying £80-£85 on energy from July.
“That is real manifest drop in energy bills. But the truth is – that’s probably it.”
Ofgem CEO recognises that it is unlikely that energy prices will return to the same levels they were before the energy crisis.
Ofgem CEO Jonathan Brearley said: "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. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.
Brearley acknowledges in the quarterly announcement that the new energy price cap is not a sign that the UK is out of crisis territory.
He says: “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, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options."
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