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Energy price cap to fall to £1,923 from October

Emma Lunn
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Emma Lunn

Ofgem has announced a reduction in the energy price cap from £2,074 to £1,923 for October to December 2023.

The change will bring the average dual fuel energy bill below £2,000 a year for the first time since April 2022, saving households an average of £151 on the previous quarter.

The £1,923 figure is for a dual fuel household paying by direct debit based on the current typical domestic consumption values (TDCV) rate. The price cap for households with a prepayment meter will be £1,949, and £2,052 for those paying by cash or cheque when they get their bill.

The drop, which puts the energy price cap at its lowest level since October 2021, reflects further falls in wholesale energy prices, as the market stabilises, and suppliers return to a healthier financial position after four years of loss making.

But although the energy price cap falling sounds like good news, households could still end up paying more for their fuel than they did last winter due to a lack of Government support. Last winter saw each household receive £400 from the Government to help with energy bills – but there is no universal support planned for this winter.

Energy use higher, savings lower

Gareth Kloet, spokesperson for GoCompare Energy, said: “It’s good news that there’s been a further drop in the Ofgem price cap, but it might come as a disappointment for many who were hoping to see a bigger reduction in today’s announcement. Particularly as we are now heading into the Autumn months, where energy usage traditionally increases across homes in the UK.”

Richard Neudegg, director of regulation at Uswitch.com, said: “Rates for the average home will be 7% lower from October to December, but energy prices remain volatile and are predicted to rise again in January.

“Despite lower unit rates, energy use will be higher, so the average household may only save around £47 next quarter compared to current rates. When we also consider that there is no universal government bill support this winter, the average household will actually be paying more than they were over the same period last year. We’ve landed in an environment in which we are expected to simply accept expensive energy costs.”

Should I switch to a fixed deal?

If you want to know what you’ll pay for a year, and don’t want to risk higher prices in future, a fixed energy tariff could be a good option for you.

Neudegg said: “The deals currently on the market may look slightly more expensive when compared with the new October price cap, but a 12-month fixed tariff secures your rates and will mean you can avoid the uncertainty of the rates changing four times a year on a standard variable tariff, especially with predictions suggesting rates could rise again in January.

“The energy market remains volatile, so it’s impossible to tell whether choosing a fixed tariff or staying on the price-capped standard variable tariff will be cheaper in the long run.”

Charities call for further help

The Resolution Foundation has called for more support for hard-up households this winter.

The Foundation notes that the upcoming price cap is almost £200 lower for the typical household than last winter’s effective cap of £2,100, driven by the Government’s £2,500 Energy Price Guarantee and £400 universal energy bill rebate. But it says these savings will be offset by a rise in the daily standing charge and the end of the £400 universal payments.

The charity has called for the Government to introduce a new social tariff for energy bills for hard-pressed households. The Government consulted on the tariff last spring but has failed to make any progress on since then.

Jonny Marshall, senior economist at the Resolution Foundation, said: “Falling wholesale gas prices have finally brought the energy price cap down below £2,000. However, this is still over 50% higher than families were used to before Russia invaded Ukraine, while the end of the £400 universal payments and rising standing charges mean that over one-in-three families across England will face higher bills this winter than last.”

Richard Lane, director of external affairs at StepChange Debt Charity, said: “The slight drop in the energy price cap announced today by Ofgem is welcome, but will do little to alleviate the immense pressure on millions of households, who are fighting just to keep their heads above water.

“The average energy bill will still be nearly double what it was 18 months ago, and many households have built up substantial arrears as a result – among new StepChange clients, over half (55%) are behind on their dual fuel bills. When put into the context of the multitude of recent price rises, the chance of being in a position to pay off energy debt for many low income households has become slim.”