The average household energy bill will fall by £426 a year from July after Ofgem dropped its price cap following tumbling wholesale prices.
The regulator announced it is cutting its price cap from £3,280 to £2,074 from July 1, marking the first time consumers on default tariffs have seen their prices fall since the global gas crisis took hold more than 18 months ago.
At its peak, the price cap reached £4,279 and, “whilst today’s level is lower than last quarter, it is still above the levels it was before the energy crisis took hold, meaning many households could still struggle to pay bills”, the regulator said.
Households have been partly shielded from the most recent rise in prices by the Government’s Energy Price Guarantee (EPG), which limited annual energy costs to £2,500 for the average household – subsidising Ofgem’s price cap.
Ofgem chief executive Jonathan Brearley said more focus will be needed for government, the regulator and the industry to support the most vulnerable groups this winter.
Mr Brearley said: “After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.
“However, we know people are still finding it hard, the cost-of-living crisis continues and these bills will still be troubling many people up and down the country. Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.
“In the medium term, we’re unlikely to see prices return to the levels we saw before the energy crisis, and therefore we believe that it is imperative that government, Ofgem, consumer groups and the wider industry work together to support vulnerable groups. In particular, we will continue to work with government to look at all options.”
Chancellor Jeremy Hunt said he was “willing to do what it takes” if energy bills rose for households again this autumn.
Asked by Sky News economics and data editor Ed Conway if he could guarantee he would step in if energy bills started to rise again, Mr Hunt said: “All I can say is that I think I’ve demonstrated in the autumn statement, and the spring budget where I extended the energy price guarantee for another three months, funded in part by a windfall tax on the oil companies, that we are willing to do what it takes.”
He added the Government was not expecting a major increase in Ofgem’s energy price cap.
Energy Security Secretary Grant Shapps said: “It’s positive households across the country will see their energy bills fall by around £430 on average from July, marking a major milestone in our determined efforts to halve inflation.
“We’ve spent billions to protect families when prices rose over the winter, covering nearly half a typical household’s energy bill – and we’re now seeing costs fall even further with wholesale energy prices down by over two thirds since their peak as we’ve neutralised Putin’s blackmail.
“I’m relentlessly focused on reducing our reliance on foreign fossil fuels and powering-up Britain from Britain to deliver cheaper, cleaner and more secure energy.”
Campaigners warned that bills would remain unaffordable for millions of households.
Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said: “The sting in the tail to this announcement is that customers are still going to 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.
“The UK Government needs to use the summer to fix Britain’s broken energy system, because for millions of people the energy bills crisis is far from over.
“This means ramping up energy efficiency programmes, helping the public with energy debt and reforming energy pricing arrangements so people don’t suffer again this winter.”
Citizens Advice chief executive Dame Clare Moriarty said: “The fall in the price cap provides some desperately needed respite for households but energy bills will still be nearly double what they were just 18 months ago. That’s unaffordable for millions of households.
“For many, life is getting worse, not better. Year on year we’re breaking records for the number of people struggling with energy debt.
“It’s clear more Government support will be needed in the future for struggling households.”
Which? Energy editor Emily Seymour said: “The news that the energy price cap will come down to £2,074 a year for the typical household from July is positive, but many will understandably be confused about what exactly this means for them and their monthly outgoings.
“While the new price cap on variable tariff rates will see typical bills drop by around £500, energy bills will be almost double the amount they were before the energy crisis began and these prices will still be unaffordable for many households.”
Consultancy firm Cornwall Insight has said households should also expect their energy bills to remain stubbornly high through the coming winter, at almost double the rates paid in 2020, and remain above pre-pandemic levels for the rest of the decade.
The price cap has rocketed from £1,162 a year for a typical household in August 2021 to its current level of £3,280, having briefly reached £4,279, with the pandemic and Russia’s war in Ukraine both pushing up wholesale prices.
Martin Lewis, founder of MoneySavingExpert, said: “This will be a relief for many, yet most will still be paying more for their energy than during the winter.
“This is because, apart from for those with high use, the drop in the rates doesn’t make up for the £66 per month state support people got until April – and most are on monthly direct debit, which means they pay the same in summer as winter.
“Overall, this still leaves people paying double or more what they did before the energy crisis hit in October 2021.
“The fact the state is paying far less than planned to support people’s bills means there is some wriggle room here for targeted support for another hard winter coming for those who are just above the benefits threshold. Though I’m not holding out much hope that it’ll happen.”
The cap does not set the maximum a household will pay for their energy but limits the amount providers can charge them per unit of gas or electricity, so those who use more energy will pay more.
The standing charge – the roughly £300 paid each year by households just to access gas and electricity – has not been included in the cap and will not fall.
Energy is regulated separately in Northern Ireland, where bills will be held at £1,950 per year for an average household.