Energy bills set to rise despite cut in price cap

Household energy bills are set to rise in April, the regulator confirmed on Monday, despite the price cap being cut by nearly £1,000.

Publishing its latest quarterly review of the cap - which was introduced to ensure customers on standard tariff bills were not overcharged - Ofgem said wholesale prices had eased, and the cap would be lowered as a result.

From 1 April, the cap will be set at £3,280 per year, down from its current level of £4,279, for a dual fuel household paying by direct debit and based on typical consumption.

However, government support will also be reduced from April, meaning bills are set to rise despite the lowered cap. Since October, the Energy Price Guarantee meant average bills were around £2,500 per year, but that is now poised to increase to £3,000 from April. The £400 winter discount on all bills will also end.

Jonathan Brearley, chief executive of Ofgem, said: "Although wholesale energy prices have fallen, the price cap has not yet fallen below the planned level of the EPG. This means that, on current policy, bills will rise again in April. I know what for many households, this news will be deeply concerning.

"However, 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."

For those who do not pay by direct debit, the cap will decrease by £1,051 to £3,482, while for those on pre-payment meters, it will be cut by £1,034, to £3,325. Both caps are higher because it costs energy companies more to serve households who pay by cash or cheque or use pre-payment meters, Ofgem said.

The price cap, which the regulator reviews quarterly, sets a maximum amount suppliers can charge per unit of energy. It reflects typical usage only and is not the maximum that be charged, meaning customers who use a lot of energy will have higher bills. It has been in place since January 2019.

While the government has confirmed plans to increase the EPG by 20% from April, campaign groups are lobbying for the hike to be reduced or delayed.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "The price cap has plummeted, revealing that the EPG isn’t going to be anywhere near as expensive as was originally feared. This provides the government with an opportunity to consider more tailored support in the budget.

"It’s going to feel particularly unfair in April when the EPG jumps to £3,000 at a time when the wholesale price of gas is on the way down.

"Already 47% of us are finding it difficult to pay our energy bills."