Ofgem price cap confirms cost of government energy support is set to fall by 90 per cent to just £1.4bn

The Ofgem announcement today (Monday) that the energy price cap will fall to £3,280 in April, down from £4,279 over the past three months, confirms that the cost of universal energy support – delivered through the Energy Price Guarantee (EPG) – is likely to fall by 90 per cent next year to £1.4 billion, says the Resolution Foundation.

The level of the price cap will not affect consumers as it is above the level of the EPG, which is due to rise to £3,000 in April. Based on current market pricing, the price cap is set to fall below the level of the EPG from July onwards as big falls in wholesale gas prices since last summer finally feed through into lower household bills.

As a result, the cost of the EPG in 2023-24 – which will only likely apply between April and June this year – is set to be just £1.4 billion, 90 per cent lower than the £12.8 billion forecast made at the Autumn Statement.

But while the cost of energy support is falling, energy bills for households are set to rise sharply this spring.

The Foundation notes that the scaling back of the EPG and removal of £400 universal bills support in April will cause energy bills to jump by 20 per cent for households on pre-payment meters (PPMs). Despite warmer weather anticipated from April, those on PPMs are set to see their monthly bills in April rise from £202 to £247.

In order to avoid an unwanted spike in energy bills, and reduce the risk of a recession in the near term, the Chancellor should delay the scaling back of the EPG until July, says the Foundation. This policy, costing around £3 billion, would have the additional benefit of reducing inflation by a further one percentage point from April.

Emily Fry, Economist at the Resolution Foundation, said:

“The latest Ofgem price cap is a stark reminder of the lag between falling wholesale gas prices, and falling household energy bills.

“While consumers won’t have to face typical bills of £3,280 this Spring, many are still set to see bills rise by a fifth as government support is scaled back.

“The Chancellor should prevent this coming energy bills spike by maintaining the level of the EPG at £2,500 for a further three months.”