Energy price guarantee to be kept until June 2023
The Chancellor has announced before the Spring Budget that The Energy Price Guarantee (EPG) will be kept at £2,500 for an additional three months from April to June, saving a typical household £160. But what can we expect after June?
Energy prices are 50% lower than forecast in October, but remain high, with this support helping bridge the gap to lower prices forecast from the end of June, said HM Treasury this week.
The news comes as Jeremy Hunt, the UK’s Chancellor, confirms he will be announcing new cost of living support at Spring Budget, including ending the prepayment meter premium and help with childcare costs.
“The freezing of the guarantee was always going to be more likely when the falling wholesale cost of energy cut the cost of support so dramatically, but we have had to wait for this final confirmation,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.
“The good news is that when wholesale prices fall enough to take the energy price cap below £2,500, we will revert to that instead, so our bills will fall. At the moment, this is expected to happen in July, when the cap is forecast to be £2,100,” she said.
How much has the EPG saved households so far?
Government support so far has cut the typical family energy bill by over £1,300 since October, stopping the average household energy bill hitting £4,279 a year this winter.
The typical family should save £1,500 from the EPG and the Energy Bills Support Scheme, when factoring in the extension.
Lower wholesale gas prices are expected to feed through to lower household energy bills from July, said the Treasury, where Cornwall Insight data suggests the Ofgem Price Cap will reach an estimated £2,100 a year for a typical household.
The total cost of the EPG from April to June is £4 billion. Within this, the additional cost of maintaining the EPG at £2,500 rather than £3,000 is £3 billion.
While the EPG will remain at £2500 on 1 April, there may be small tariff changes as suppliers re-balance between standing charges and unit rates, the Treasury said in a statement.
“Implementation of any tariff changes will be determined by the energy suppliers,” the report said.
What’s the long-term route to bringing energy prices down?
Responding to the Chancellor’s Budget Speech, Energy UK’s chief executive Emma Pinchbeck, said:
“If wholesale costs continue to fall, customers will see lower bills later this year – but these will still be much higher than before the current crisis. So the energy industry is urging the Government and Ofgem to work with us on putting in place targeted support – such as through a social tariff – to ensure bills are affordable for all households over the long term,” says Pinchbeck.
“On that score, we also hope that the [Energy Efficiency] Taskforce announced today represents a real and overdue commitment to improving the energy efficiency of our homes and businesses,” she says.
“The only long-term route to bringing down bills is through a rapid expansion of clean, cheap, homegrown power and reducing our dependence on the expensive fossil fuels that have led to record bills over the last year,” says Pinchbeck.
While the funding for Carbon Capture projects and the commitment to small nuclear reactors is welcome, Pinchbeck says the Government must now “act to address growing concerns over rising costs, supply chain difficulties, a poorly designed windfall tax, and planning and infrastructure delays that all threaten the billions of pounds of investment needed for the build-out of low carbon generation.”
Low-income cash payments from April
From April, more support is coming online with 8 million low-income and vulnerable households set to receive at least £900 in cash payments over the next year, benefits and pensions set to rise by over 10 per cent, and the National Living Wage increasing to a record £10.42 an hour, so that it always pays to work.
The Spring Budget will also help with childcare costs for parents on Universal Credit and ending the energy premium paid by households who use prepayment meters, which will save 4 million families £45 a year from July.
Prime Minister Rishi Sunak said:
We know people are worried about their bills rising in April, so to give people some peace of mind, we’re keeping the Energy Price Guarantee at its current level until the summer when gas prices are expected to fall.
Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.
Chancellor Jeremy Hunt said:
High energy bills are one of the biggest worries for families, which is why we’re maintaining the Energy Price Guarantee at its current level. With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.
Energy Secretary, Grant Shapps is more direct in what he finds to be the root of the energy price crisis:
Putin’s illegal war has cost British families, which is why we’ve stepped in to pay around half of the typical household energy bill.
With wholesale prices falling families will start to benefit, but in the meantime we’re stepping back in with the Energy Price Guarantee to prevent the typical electricity and gas bill exceeding £2,500. It’s just part of our plan to help families this winter.
Fixing a broken system
Coles made a point to say that 48% of people in the UK are finding it difficult to pay their energy bills – rising to 54% among those in their 30s and 40s. Meanwhile, more than one in 20 have fallen behind on their bills (6%), according to Coles’ research.
“This rises to one in seven of the fifth lowest earners. For these people, the removal of the £67-a-month discount is going to mean even bigger bill nightmares,” she said.
She is more positive when it comes to the news for those on pre-payment meters who are expected to experience “some respite” now that the pre-payment premium has been axed.
“It’s hard to believe we have lived with a system for so long where those who can least afford their energy bills have had to pay more for it than anyone else,” said Coles.