Energy prices have been one of the primary drivers of the cost-of-living crisis – until now.
Annual gas and electricity price inflation came in at 36.5 and 17.3 percent in May, well below the winter’s highs.
On July 1, the price cap set by regulator Ofgem fell to £2,074 – just under half the £4,279 at which it stood at the start of 2023.
This represents the amount a typical dual-fuel household could expect to pay over a year if the supplier charged a maximum of £0.30 per kilowatt hour (kWh) for electricity and £0.08 per kWh for gas. These rates are now fixed until September.
This means the price cap is now lower than the Government’s Energy Price Guarantee (EPG) – now at £3,000 – making it no longer relevant.
Ofgem first introduced a limit on the unit costs energy suppliers could charge British households in January 2019.
It is not a cap on annual bills: homes that consume more gas and electricity will be charged more, and vice versa.
The regulator also imposes a maximum daily standing charge – the amount a house must pay simply for being connected to the grid, regardless of usage – which remain unchanged since January at £0.53 for electricity and £0.29 for gas.
These figures represent the national average, however, and vary considerably by region in practice.
A research briefing published by the House of Commons last month suggested the cap was forecast to fall just below £2,000 in October – when it is next reviewed – and remain at broadly this level going into January 2024.
It claimed lower wholesale prices may well lead individual suppliers to offer cheaper fixed tariffs, but that it was “likely that suppliers will be cautious in their pricing and any return of competition to the market is likely to be slow.”
Ahead of the price cap change on Saturday, energy consultancy Cornwall Insight revealed they expected the it to come in at £1,871 in October, before rising slightly to £1,900 next January.
Dr Craig Lowrey, Principal Consultant at Cornwall Insight said: “While typical household predictions may provide some insight for consumers, households are still facing the challenge of bills that are well above historic levels.”
Indeed, an average annual energy bill of £2,071 is still 60.7 percent higher than what Britons faced in 2019, according to OVO Energy.
Dr Lowrey added: “This situation brings us back to the question of the cap’s purpose – as doubts about the cap’s effectiveness in protecting consumers and its impact on tariff competition become a regular part of energy discussions.
“Any reductions in the price cap should not diminish the sense of urgency in implementing necessary changes. The protection of vulnerable households from high energy bills remains a pressing issue that requires immediate attention.”
Last October, then Prime Minister Liz Truss introduced the EPG to limit the amount households would have to pay to an average of £2,500. Over the winter, this was well below what suppliers were owed, and the Government fronted the difference at considerable cost.
Also on July 1, the EPG rose by 20 percent from £2,500 to £3,000 – an increase delayed by three months in Jeremy Hunt’s Spring Budget. As this is now above the rate providers are allowed to charge under Ofgem, the EPG will no longer cost the Treasury a penny.
The Chancellor and Bank of England’s top priority remains bringing down persistently high inflation. The headline rate came in at 8.7 percent in the year to May, unchanged from April.
While gas and electricity price inflation has dropped in recent months, food and beverages continue to become more expensive at almost 45-year-high rates.