Ofgem announces 7 per cent fall in energy price cap, boosting living standards for lower-income households

The new Ofgem price cap of £1,641, effective from 1^st April 2026, represents a 7 per cent (£117) fall on current (Q1 2026) levels, bringing a welcome boost to strained household budgets, according to the Resolution Foundation this morning (Wednesday).

The main driver of lower prices is the Government’s £6.9 billion energy discount announced at last year’s Budget, which moves some policy costs from bills into general taxation in a step that will overwhelmingly benefit lower-income households.

Recent analysis from the Foundation shows that savings will be larger for poorer households. Energy bill falls are worth twice as much to households in the bottom two income deciles (0.8 per cent as a share of spending) as they are for the top two (0.4 per cent). And funding policies through the tax system will see those on higher incomes contribute far more to their costs.

Wholesale prices are also pushing bills down, representing a fall of £55 (9 per cent) compared to current levels. But acting in the opposite direction is an increase in network costs pushing up the typical bill by £65, £40 of which is for upgrades to the gas grid. The Government has also moved the cost of the Warm Homes Discount from standing charges to unit prices – a move that will help those with low levels of energy use but see families with higher demand pay more.

Annual bills across 2026 are now on track to be around £1,645 – £200 lower, in real terms, than in 2024. But prices in Q2 2026 remain above pre-crisis levels: up 14 per cent, in real terms compared to the eve of the energy crisis in Q2 2021.

Looking ahead, the Foundation estimates that changes in network and policy costs, and wholesale prices will push up bills by £60 by 2029, eating into the Government’s bill discount, which is already set to expire in 2029. At that point, £55 a year will be added back onto typical bills unless support is extended. That would leave ministers – potentially just ahead of a General Election – facing a difficult choice between higher household bills or finding the money to act.

Jonathan Marshall, Principal Economist at the Resolution Foundation, said:

“Today’s price cap announcement is genuinely good news for families who’ve been squeezed hard by energy bills for years now with well targeted support that helps poorer families with the greatest need.

“But bills remain far higher than they were before the energy crisis hit, and the relief we’re seeing today won’t last forever.

“Network costs are already creeping up, and come 2029, the Government’s support disappears almost overnight – leaving ministers facing an uncomfortable choice between letting family bills jump again, or finding more money from a cash-strapped Treasury.”