The energy price cap will set annual default bills to an average of £2,074 from 1 July, thanks to a fall in wholesale energy prices.

The 17% price drop will be a welcome relief for households struggling with the cost-of-living crisis, but the price still remains significantly higher than it was even a year ago.

The regulator Ofgem sets a price cap on the amount providers can charge for a unit of gas and electricity. It is not the maximum bill you will pay over the year as this is an average figure based on a dual fuel household paying by direct debit for typical consumption. It is reviewed every three months, with the next due in August.

But after prices shot up, following the invasion of Ukraine by Russia, the Government introduced a new Energy Price Guarantee (EPG) in October. This overruled Ofgem’s energy price cap which froze prices at £2,500. The EPG will expire at the end of June, when the new £2,074 cap comes in, meaning households will save an average £426 on bills.

A series of other Government measures, including a £400 discount for all households, were also introduced to help with rising energy bills.

While Ofgem’s price cap has dropped significantly from the £4,279 figure in January 2023, and £3,280 set in April 2023, it is still well above the pre-2021 average. In the winter of 2020-21, for example, prices were capped at £1,042.

Vulnerable households need energy support

CEO of Ofgem, Jonathan Brearley, said there now needs to be a focus from the Government, the regulator, and the energy industry to support the most vulnerable households.

He said: “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.”

Before prices rose, customers were able to switch suppliers to save money and it’s expected this will return as prices fall. Yet many providers then went into administration when prices increased and they did not have enough capital to survive.

Ofgem is now consulting on how to make the energy market more resilient to turbulent market conditions.

Brearley added: “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.

“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.”

‘The damage from unaffordable energy bills is already done’

The price drop comes as households are struggling amid the cost-of-living crisis and soaring prices. Many households are also in arrears with their energy bills.

Recent data from the charity StepChange showed that 55% of those paying dual fuel bills were in energy arrears in March, a 4% rise since January. For gas it was 29% and electricity 27%, a monthly rise of 2% and 1% respectively.

Joanna Elson CBE, chief executive at the Money Advice Trust, said: “Today’s price cap announcement offers some relief to households – but for many, the damage from unaffordable energy bills is already done. Energy is still significantly more expensive than when this crisis started, and more support is going to be needed.

“We need permanent solutions to this problem – including a social tariff for low income households, and a wider Essentials Guarantee to ensure Universal Credit always covers essential costs.

“It’s also vital that people can access the advice they need. I would urge anyone who is worried about their energy bills to seek free, independent debt advice from a service like National Debtline. Our expert advisers are there to help and talk you through your options.”

Anna Stevenson, senior welfare benefits specialist for Turn2Us, said: “Any decrease in the punitive cost of energy is clearly welcome but the debt people have already incurred through no fault of their own will carry with them into next winter.

“For lowest income households, this decrease won’t help enough. Bills will settle to being around almost double the cost before the pandemic and fuel poverty was unacceptably high even then. Government schemes are also coming to an end, but the crisis is not.”