Energy bills to rise for many despite reduction in price cap, experts warn

Millions of households are expected to pay more for their energy this winter than they did a year earlier, even though Ofgem reduced the price cap on bills.

Experts said the reduction of Government support and a small increase in the standing charge would hike bills for some.

Energy regulator Ofgem said the new cap on a unit of gas and electricity would reduce the average bill to £1,923 from October 1, from £2,074 per year.

The average customer with a prepayment meter will see their bills fall to £1,949 per year.

This average is based on an estimate that the typical household uses 2,900 units of electricity and 12,000 units of gas.

The energy regulator said it was cutting the price of gas from 8p per kilowatt hour (kWh) today to 6.89p from October 1. The price of electricity will fall from 30.1p per kWh to 27.35p.

The standing charge on energy bills also rose from 82p to 83p per day for gas and electricity. Households pay this amount – around £303 per year – no matter how much gas or electricity they use.

The price cap applies to England, Wales and Scotland.

While this looks, on the face of it, like good news for millions of struggling households, the lack of Government support this winter will actually mean higher bills for many.

Last winter the typical household would have paid £2,500 per year due to the Government’s Energy Price Guarantee, which in practice superseded the then much higher price cap.

On top of that, each household’s bill was reduced by between £66 and £67 per month between October and March due to a separate Government grant.

Meanwhile, the standing charge has risen from 74p last winter to 83p this year, adding a little under £3 per month to bills.

Jonny Marshall, an expert at the Resolution Foundation, estimated about one in three households in England, or 7.2 million in total, will face higher bills between October and March.

These households will be those who consume less gas and electricity than a typical household.

The Resolution Foundation’s analysis suggested that among the poorest tenth of English households, nearly half (47%) would face higher bills this winter.

“The end of the £400 universal payments and rising standing charges mean that over one-in-three families across England will face higher bills this winter than last,” Mr Marshall said.

“With almost three million households set to see their bills rise by over £100 – at a time when inflation is still sky high – the Government must up its game in providing longer-term support for hard-pressed families with a new social tariff for energy bills.”

Ofgem chief executive Jonathan Brearley said: “It is welcome news that the price cap continues to fall, however we know people are struggling with the wider cost-of-living challenges and I can’t offer any certainty that things will ease this winter.”

While households are unlikely to feel much difference this winter when comparing it to last, it will mean a much smaller bill for the taxpayer, which was paying out billions to subsidise bills last year.

Asked on Sky News whether it would be helpful if the Government reintroduced subsidies, Mr Brearley said: “Well, of course it would be helpful, but what I don’t have to do that they have to do is think about the fiscal position, think about the tax position and all the other trade-offs they’ve got to make.”

Citizens Advice head of energy policy Gillian Cooper said targeted support for households would be desperately needed.

A record number of people who are behind on their energy bills are already turning to the charity for help, she said.

“The next few months will push households like these over the edge. Our data suggests it will be as bad, if not worse, than last winter,” she said.

“Government must step in quickly with more targeted support for the households who need it most.”

With gas prices expected to keep energy bills at elevated levels until at least the end of this decade, some said the only way to reliably bring down bills was to invest in insulation and other things that can help reduce how much energy people need to use.

Mike Thornton, chief executive at the Energy Saving Trust, said: “A key priority must be to support individuals to use less energy in their homes and buildings to start with.

“A wrap-around national retrofit programme for households, underpinned by financial incentives and personalised advice, would reduce our demand for gas and bring bills down in both the short and long term.”

Connor Schwartz, warm homes campaigner at Friends of the Earth said:  “With winter fast approaching, the best time to start rapidly rolling out street-by-street insulation was yesterday, the next best time is now.”

Friday’s announcement also raised the issue of whether the price cap is suited to the job it is now doing.

Even Ofgem itself questioned the policy’s effectiveness on Friday, saying: “While the price cap has protected households from the full extent of volatility and surges in wholesale prices over the last two years, it was originally introduced by the Government to protect the minority of consumers who did not switch rather than to cover the vast majority of consumers, as it does now.

“It is a blunt tool and in the current market it has costs as well as benefits. It’s important to look at alternative models to examine whether they could work better with the current volatile market and the move to net zero.”

Some have called for a so-called social tariff, which would offer cheaper gas and electricity to those most in need.

Labour’s shadow energy and net zero secretary Ed Miliband said: “Higher energy bills are unfortunately here to stay under the Conservatives – even with this fall, bills are significantly higher than they were only three years ago.”

Prime Minister Rishi Sunak told the BBC: “Actually, today is really good news for families up and down the country with a reduction in the energy price cap that’s going to reduce, on average, a typical family’s energy bill by about £150, easing the burden on the cost of living.”