A blank cheque

An analysis of the new cap on energy prices

Liz Truss’s first major act as Prime Minister was to set out a huge energy support package to reduce the scale of the living standards’ catastrophe this winter, with the Energy Price Guarantee (EPG) as its highlight.

The EPG will mean that annual energy prices for the typical household are capped at £2,500 for two years from October 2022. This means that energy bills will likely be £1,074 lower over the next six months than current forecasts of the Ofgem energy price cap. Together with the previously announced £400 energy bill rebate, the EPG covers 76 per cent of the increase in bills compared to last winter (October 2021-March 2022), and means that prices should remain around their current levels this winter (the annual cost of energy for a typical household is £1,971).

This note assesses who gains from the EPG, what it might cost, and how the companion support for non-domestic users could work.