From 1 April the UK’s energy price cap will be set at an annual level of £3,280 for a dual fuel household paying by direct debit based on typical consumption, a reduction of almost £1,000 from the current level of £4,279. The reduction is in response to recent falls in wholesale energy prices.

The £3,280 figure indicates how much consumers on their energy suppliers’ basic tariff would pay if the government’s Energy Price Guarantee (EPG) were not in place. But the government has already set the EPG at £3,000 for typical bills from 1 April, meaning that consumers will not pay the full level of the energy price cap.

Introduced by the government and in place since January 2019, the energy price cap tracks wholesale energy and other costs and aims to ensure that customers do not pay more than a fair price for their energy. It is designed to prevent energy companies from making excessive profits but also enabling energy companies to pass on increases in the price of buying gas and other reasonable costs to their customers. The price cap does this by setting a maximum that suppliers can charge per unit of energy.

Commenting on the new energy price cap, Ofgem CEO Jonathan Brearley says: ‘Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means, that on current policy, bills will rise again in April. I know that, for many households this news will be deeply concerning.’

Meanwhile, Energy UK’s Chief Executive Emma Pinchbeck says: ‘Customers will be shielded from paying the full amount announced by Ofgem as the government’s Energy Price Guarantee (EPG) will continue to cap energy bills until March 2024. However, from April 2023 the EPG is expected to rise to £3,000/y – £500 higher than it is now – which, combined with the end of the separate monthly rebate payments, will mean most people’s bills will rise significantly.’

She continues: ‘Falling wholesale costs means the EPG has cost the government a lot less than had been anticipated so we, alongside many charities and consumer groups, are urging them to use this surplus to hold the EPG at £2,500 – and to announce that quickly so it can be incorporated in customer bills in time for April.’

Although Pinchbeck notes that the decrease in the energy price cap gives ‘some cause for optimism that if the pattern continues, bills will fall later this year and we will begin to see cheaper, fixed deals back in a functioning, competitive market’, Ofgem’s Brearly warns that ‘prices are unlikely to fall back to the level we saw before the energy crisis’.  
 

Meanwhile, TUC General Secretary Paul Nowak says: ‘Energy bills are out of control. The government must cancel April’s hike. With the cost of wholesale gas plummeting ministers have no excuse for not stepping in. Families across Britain are at breaking point. Prices are skyrocketing, but wages are failing to keep pace with the cost of living.’

Nowak also reiterated the need for reform of the UK’s energy market, adding: ‘It is shameful that household budgets are being hammered while oil and gas firms rake in billions in excess profits. We need a much higher windfall tax. But we also need proper reform of our broken energy market. Energy retail companies should be brought back into public ownership to help bring down bills and fund home insulation. Much-needed investment is being siphoned off into shareholders’ pockets.’

There has been some press speculation that UK Chancellor Jeremy Hunt could announce that he will keep the EPG at current levels for a further three months from April, when he unveils his budget on 15 March 2023.