Energy bills set to stay high despite price cap cut

BBC News reports that experts warn energy bills are set to remain high despite a cut in prices from July.

A typical household will pay £2,074 a year for gas and electricity from July, £426 a year less than currently, after the regulator cut the energy price cap for England, Scotland and Wales.

It marks the end of government help which has limited bills to £2,500.

However, prices are not expected to fall much further over the rest of the year, and could edge up in winter.

MoneySavingExpert's Martin Lewis said from the end of this year people would be paying roughly what they did last winter, because while prices are cheaper the £400 discount from the government would no longer be available.

"People will still be paying double what they used to pay before the energy crisis hit," he added.

Kate Mulvany, a senior consultant from energy analysis firm Cornwall Insight, also said further substantial falls in bills would be unlikely particularly if there was a cold winter across Europe with the UK competing to buy energy with other countries.

"Our forecasts suggest until the end of this decade, higher and more volatile prices are going to be seen, and that includes the impact they're going to have on domestic bills unfortunately," she told BBC Radio 4's Today Programme.

Ms Mulvany said she expected prices to only fall from the 2030s onward if investment in renewable energy continues.

Earlier this week, Qatar's energy minister warned the "worst is yet to come" for gas shortages in Europe, suggesting prices could rise again.

There are hopes that the fall of the price cap below the government's guaranteed level could lead to the return of competition in the market, with people able to shop around for the best deal.

But Mr Lewis said that he did not expect to see firms publicising new offers immediately, with energy firms instead offering existing customers bespoke offers, with no new deals across the market.

The boss of energy regulator Ofgem Jonathan Brearley urged people to contact their supplier if they were struggling to pay their bill.

"In the medium term, we're unlikely to see prices return to the levels we saw before the energy crisis," he added.

The regulator sets the maximum price that can be charged per unit of gas and electricity to households on variable or default tariffs in England, Wales and Scotland.

Since October, it has been superseded by the government's Energy Price Guarantee, which meant a typical household's annual gas and electricity bill has been £2,500, but this will expire at the end of June. A £400 discount on everyone's energy bills, provided by the government during the winter, came to an end in April.

Most households do not use a typical amount of gas and electricity. Bills are based on how much energy a household actually uses, which depends on the number of people, the type of property and its energy efficiency.

The calculations for a typical household are based on a direct debit customer using 12,000 kWh (kilowatt hours) of gas and 2,900 kWh of electricity a year. A kilowatt hour is a unit of energy used to calculate your bill.

Graphic showing the new price cap from Ofgem
About 29 million households will be affected by the change in the cap, but there will be some differences in typical payments from July

  • Those who pay via a prepayment meter will pay a similar level to those on direct debits at £2,077 a year
  • Those who pay by cash, cheque or bank transfer, usually every three months, will have to pay more, with a price cap of £2,211 a year
  • In Northern Ireland, which is regulated separately, bills will be held at £1,950 per year

Despite the cut to the price cap, charity National Energy Action said that 6.5 million people would still be in fuel poverty. The typical bill from July will still be much higher than in the winter of 2021 when it stood at £1,277 a year. Charity Citizens Advice described that as "unaffordable for millions of people".

And Simon Francis, coordinator of the End Fuel Poverty Coalition, said customers would still be paying roughly the same for their energy as last winter.

"And after months of inflation and the wider cost of living crisis, people are even less able to afford these high energy bills," he said.

The Rural Services Network notes that in Predominantly Rural areas of England one in four properties (25%) were off the gas grid in 2021, meaning that 1.4 million properties were reliant on bottled gas, oil and solid fuels for their heating, for which Ofgem does not set a maximum price cap. Increases in the cost of domestic fuel therefore disproportionately impact rural communities and the fuel poor within them.

Annual Fuel Poverty Statistics published on 28 Feb 2023 for the year 2022 show that in 2022, households living in rural areas have a higher rate of fuel poverty and a much larger fuel poverty gap.

One of the most startling figures in the recently published statistics is the fuel poverty gap.  The fuel poverty gap is the additional income which would be needed to bring a household to the point of not being fuel poor. 

For rural areas, using 2020 figures, this was £501 with urban areas at around £200.  In 2022, these figures are astronomical for rural area with the fuel poverty gap sitting at £956 compared to the lowest fuel poverty gap in London at £223.

Research by the Rural Services Network last year showed that a devastating triple blow of higher household and transport energy poverty, along with lower wages earnt in rural areas pushes rural communities into a cost of living emergency.

Full article:

BBC News - Energy bills set to stay high despite price cap cut


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