Why Are Energy Bills About To Go Up Again When The Price Cap Is Going Down?
Energy bills are expected to rise again in April, even though the energy regulator Ofgem is bringing down the price cap.
This is obviously a little confusing – so here’s what you need to know about our fluctuating bills.
What do we pay right now?
The average household pays around £2,500 for gas and electricity in Britain and around £1,950 in Northern Ireland right now.
This is significantly less than the current energy price cap of £4,279, a rate which has been in place since January.
That’s because of the energy price guarantee (EPG) where the UK Government subsidises energy suppliers for the excess.
Consumers then pay whichever one is lower: the EPG or the energy price cap.
The £400 energy bills support scheme further reduced the average bills for households, cutting it back to £2,100 a year. This worked out to provide a £67 discount per month between October and March.
What’s happening with the cap?
The energy price cap, set by regulator Ofgem and first introduced n 2019, decided the maximum standing charge and unit rates firms could levy until October 2022.
It kept going up because of the rising cost of wholesale gas prices around the world, linked to the Ukraine war.
Ofgem has announced that the amount energy suppliers are able to charge will decrease from April 1.
It will fall to £3,280 between April 1 and June 30, having been at £4,279 per year for average household between January 1 and 31 March.
That’s a decrease of almost £1,000.
However, that does not have a direct impact on customers at the moment, because of the assistance from the government.
Ofgem’s chief executive Jonathan Brearley said: “Today’s announcement reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won’t make an immediate difference to consumers, it’s a sign that some of the immense pressure we’ve seen in the energy markets over the last 18 months may be starting to ease.”
So why are energy bills going up?
While the energy price cap will fall, the government’s help actually means Brits won’t feel the benefits.
The government’s energy assistance meant the UK was not actually paying the energy price cap, but paying the lower amount in the EPG.
But, the government’s additional support for the bills in the EPG is going to decrease from April, meaning bills will jump from £2,500 to around £3,000 instead.
So, instead of the maximum energy cost for a household being at £2,500 it will now be at £3,000.
This means the amount we pay will increase by 20%.
The £400 energy bills support will also end, which could take the total energy costs for households up by 40%.
Analysts at Cornwall Insight estimate that the government will save £2.5 billion by riasing the EPG from £2,500 to £3,000 – but it means households will pay instead.
Ofgem has announced a drop in its energy price cap. So, why are household bills still expected to rise?@adam_scorer, CEO of National Energy Action, says it’s down to the ending of government support.#KayBurley LT pic.twitter.com/RmXkiDCiOf
— Kay Burley (@KayBurley) February 27, 2023
What happens after April?
Wholesale gas prices have actually decreased compared to when the energy crisis began.
There is a time lag delay, but it does mean – according to analysts at Cornwall Insight – that Ofgem price cap should fall to just above £2,150 from July 1 until the end of the year.
As long as wholesale prices do not soar again, consumers would go back to paying the lower Ofgem price cap instead of using the government’s guarantee scheme, as they will always pay the lowest amount.
The government also announced a £900 cash boost for more than 8 million eligible means-tested benefits claimants spread across three instalments between Spring 2023 and 2024.
That includes those on universal credit, pension credit and tax credits.
More than six million disabled people will get a separate £150 paid in the summer and £300 for more than eight million pensioners in the winter.
But Brearley warned this doesn’t mean we’re back to pre-2022 energy prices.
He said: “Prices are unlikely to fall back to the level we saw before the energy crisis. Even with the extensive package of government support that is currently in place, this is a very tough time for many households across Britain.”
What’s wrong with the current system?
MoneySavingExpertMartin Lewis has been calling for the Treasury to postpone the lift of the guarantee ceiling to £3,000 until July.
He said in a letter to chancellor Jeremy Hunt that the decision to increase prices from April came at a time when “wholesale rates were looking to be far higher than they are now.”
He pointed out that the charity National Energy Action has predicted that fuel-poor households will rise from the 6.7 million estimated number to 8.4 million come April.
He tweeted: “It seems especially futile to subject people to the financial and mental health damage of a 20% rise for three months, especially as the EPG will cost many £bns [billions] less than originally thought.”
Some saying, in other words "price cap going down, but what we pay is going up?" CORRECT.
Though as I note I'm now hopeful the government will cancel the 20% April price rise. https://t.co/QjfCrbWfNW
— Martin Lewis (@MartinSLewis) February 27, 2023
Dame Clare Moriarty from Citizens Advice has also warned the increase in bills will “spell catastrophe without further support from the government”.
She said Citizens Advice estimate the number of people unable to afford their bills will double from one in 10 to one in five.
Unite’s general secretary Sharon Graham also lashed out at the news, saying that Ofgem’s latest change to price cap does “next to nothing to ease pressure on workers and communities”.
She added that the “out of touch” government is “totally abdicating any responsibility for dealing wit the runaway profiteering of energy companies”.
Giants including Centrica (British Gas), BP and Shell have all reported whopping profits in the billions for 2022.