UK Households Brace For Higher Energy Bills In April

Households face a painful hike to their energy bills in April, with government support tapering off and the price cap remaining above the subsidised rate.

Watchdog Ofgem has slashed the price cap to £3,280 per year for average households for the second quarter of 2023, an almost £1,000 drop from the current record level of £4,279 per year – reflecting sharp falls in wholesale energy prices.

However, Brits will be exposed to a higher subsidised rate of energy bills, with Chancellor Jeremy Hunt reducing the subsidy levels in the Energy Price Guarantee so that household bills supported at an average rate of £3,000 per year rather than £2,500 per year.

With the price cap still above the subsidy rate, customers will have little choice but to take on the £500 per year hit, alongside the £400 loss of the discount scheme unveiled last year when Rishi Sunak was chancellor – which is now coming to an end in April.

This is an effective £900 bump up for average household energy bills – raising the prospect of heightened fuel poverty and households struggling to cover their costs.

Customers are likely to benefit from much lower prices in the second half of 2023, when the drops in gas prices will be fully realised in energy bills, with the price cap expected to drop below the subsidy rates.

This is because suppliers purchase energy on long-term contracts rather than spot-markets, with hedging arrangements for customers, meaning that macro-factors such as drops in wholesale costs can take months to kick in.

Energy specialist forecaster Cornwall Insight is predicting the price cap will fall to £2,362 per year in the third quarter and remain steady at £2,389 in the winter.

This will mean that, by the summer, prices paid by consumers will drop for the first time since the global gas crisis took hold more than 18 months ago.

However, it would still be historically very high – with the price cap moving between £1,000-£1,200 per year prior to the industry crisis that saw 30 suppliers collapse and Russia’s invasion of Ukraine which drove gas prices to record highs.

The price cap was first introduced by the government and has been in place since January 2019, and remains contentious in the industry.

Ofgem review the level at which it is set on a quarterly basis – looking to reflect wholesale markets and ensures an energy supplier can recoup its efficient costs, while also shielding customers so that they do not pay a higher amount for their energy than they should.

The price cap, as set out in law, does this by setting a maximum that suppliers can charge per unit of energy.

Commenting on the latest announcement, Ofgem chief executive Jonathan Brearley said: “Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means, that on current policy, bills will rise again in April. I know that, for many households this news will be deeply concerning.

“Prices are unlikely to fall back to the level we saw before the energy crisis. Even with the extensive package of government support that is currently in place, this is a very tough time for many households across Britain.”

The next quarterly price cap update will be on 26 May 2023.   

By CityAM

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