The energy price cap has fallen below £2,000 a year for the first time in 18 months but consumer groups have warned that households will feel little relief from high energy costs this winter.
The 29 million households in England, Wales and Scotland can expect to pay an average of £1,923 a year from October after the energy regulator dropped the price cap from £2,074 in the previous quarter.
The average household will still pay almost double the rate for their gas and electricity than before Russia’s invasion of Ukraine triggered a global energy crisis.
Many will see little difference in what they pay because the £400 support from the government given to all homes last winter is no longer available, and standing charges have risen from an average of £186 a year in October 2021 to just over £300.
Ofgem has trimmed the price cap, which sets the maximum unit rate that suppliers can charge and is adjusted every three months, because of a recent fall in gas and electricity market prices.
The new rate will apply from October to December before it is adjusted again in January. The cap does not limit the amount customers pay: those who use more energy pay more.
Ofgem has produced two numbers for the new price cap after changing how it calculates the typical energy bill. The £1,923 figure is comparable with the previous quarter. However, from now on, Ofgem’s cap assumes households will use 7% less electricity and 4% less gas than in previous years, meaning a lower cap of £1,834 when expressed as an annual dual-fuel energy bill for direct debit customers.
The fall could be temporary: the price cap is expected to rise again from January, according to the energy consultants Cornwall Insight. It will reach £1,932 then under the new calculation.
Energy price cap graphic
Consumer groups have urged households to pay attention to the cap on unit rates for gas and electricity instead of the average annual bill. Under the new cap the price of electricity has fallen to 27.4p a kilowatt hour, from 30p a kWh previously, while the unit price for gas has fallen from 7.5p a kWh of gas to 6.9p a kWh.
In the winter of 2021 the average bill was £1,277, while last year typical bills were capped at £2,500 by the government, and households received the £400 of support.
Budgets will also have been squeezed by an increase in the average standing charge – a fixed charge levied on all households regardless of how much gas or electricity they use. The charges, which vary by region and are included in the £1,932 cap number, have risen from an average of 51p a day for electricity and gas in October 2021 to 83p this October.
Jonathan Brearley, Ofgem’s chief executive, 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.”
Gillian Cooper, the head of energy policy at Citizens Advice, said: “Increasing numbers of people we help are in a negative budget, where they simply don’t have enough money coming in to cover even just their essential bills. 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.
“Government must step in quickly with more targeted support for the households who need it most.”
The energy cost crisis has fuelled calls from across Westminster and the energy industry for government ministers to do more to help vulnerable households pay their energy bills by setting a “social tariff”.
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The government promised to consider legislation that would offer a tariff at well below the market rate but in a recent consultation on energy market changes a social tariff was not included.
The government offered all bill payers the £400 one-off payment through its energy bills support scheme last winter. For the winter ahead the government will offer targeted support, including a £900 payment for those on means-tested benefits, £300 for pensioners and an extra £150 for disabled people.
Energy debt level graphic
Simon Francis, the coordinator of the End Fuel Poverty Coalition, said: “The government seems to be running out of enthusiasm to help people get through the energy bills crisis, and it is also now running out of time to act to keep people warm this winter.”
Ed Miliband, the shadow energy and net zero secretary, said Labour would toughen the windfall tax on North Sea oil and gas companies to pay for further financial support in the cost of living crisis. “These figures demonstrate the scandalous Tory cost of living crisis is still raging for millions of people,” he said.
For households on a prepayment meter, the cap will fall to £1,949 from October, from £2,077 the previous quarter. For those paying by cash or cheque, the cap will fall from £2,211 to £2,052. They pay more as it costs more for energy companies to serve them, Ofgem said.
The regulator confirmed energy firms would increase the amount of profit they make through the price cap by £2 for every average customer. The regulator hopes to allow suppliers to recoup losses made during the energy crisis to prevent more companies from going bust.
However, allowing companies to make greater profits as households struggle with bills could spark further public anger towards energy companies.
