By Kevin Peachey
Cost of living correspondent
An annual energy bill for a typical household will fall to £1,923 in October under regulator Ofgem’s new price cap.
The maximum price of each unit of gas and electricity for 29 million households in England, Wales and Scotland is governed by the decision.
A typical bill will be £151 lower than currently and £577 down on last winter.
But reduced government support and higher fixed costs mean many will see little difference in what they pay.
Ofgem chief executive Jonathan Brearley told the BBC’s Today programme: “We know people are struggling with the wider cost of living challenges and I can’t offer any certainty that things will ease this winter.”
He also said that prices paid by suppliers would be “volatile for some time to come”, offering little long-term certainty to customers.
How the price cap works
Ofgem’s price cap is now set every three months, partially to reflect changes in wholesale prices which are paid by energy suppliers.
It sets the maximum amount that suppliers can charge for each unit of energy but not the total bill. If you use more, you will pay more.
For a home using a typical amount of gas and electricity and paying by direct debit, the current annual bill is £2,074.
This will fall to £1,923 for the final three months of this year.
Those who pay via prepayment meters will see their typical bill fall to £1,949, from £2,077.
Those who pay bills every three months, often by cheque – known as standard credit – will pay £129 more a year than those using direct debit.
Domestic energy bills will be lower than the £2,500 a year paid last winter and spring, when the government stepped in after costs rocketed following Russia’s invasion of Ukraine last year.
However, a cap set by the government is no longer needed and last winter’s £400 discount to every household, which was paid in six instalments between October and March, has finished. And there appear to be no plans to repeat the discount.
Bills will still be considerably higher than the typical level of £1,277 a year which was paid in the winter of 2021.
Standing charges, a fixed daily payment covering the costs of supply and other levies, have been rising and are expected to continue to go up. Mr Brearley said that it was difficult to shift some of these costs onto usage prices.
They, like the overall cap, vary by region, with some areas such as North Wales and Merseyside paying more. That will have more of an effect on those with relatively low energy use, who cannot cut back any further to reduce their bill.
“Typical households are still facing sky-high energy costs, now that support schemes have come to an end,” said Gillian Cooper, from Citizens Advice.
“Government must step in quickly with more targeted support for the households who need it most.”
Mr Brearley said that social tariffs, for lower-income households, should be considered as an option.
Andrea and Jay say they have energy debts
Jay Cross, who runs a barbers shop, said he and his wife Andrea found their direct debits were failing to cover their bills last year.
“We ran over on the bills and then made payment plans to catch up with it,” he said.
“We’ve got no choice, we’ve got to have the heating on – especially with the baby. We’re still in arrears but we are going to get back on top of it ready for this winter.”
Analysts suggest bills are unlikely to fall significantly for the next decade.
The government said it had spent nearly £40bn putting a limit on bills throughout last winter, since when wholesale energy prices – as well as the costs for consumers – had dropped. Additional help was being offered through schemes like the Warm Home Discount.
Cost-of-living payments will continue to be made to people on lower incomes and those receiving certain benefits to help with high bills.
Here are some energy saving ideas from environmental scientist Angela Terry, who set up One Home, a social enterprise that shares green, money-saving tips:
- Get a water-efficient shower head free of charge from your water company and use showers rather than baths
- Consider loft insulation, which she says costs around £680 for a typical semi-detached home and could save £285 a year on gas bills
- Hang out washing instead of using a tumble dryer, and walk instead of drive when possible
- Use windy days to feel where draughts are in the house. Wetting the back of your hand helps to locate them, then use insulation or draught-proofing tape
- Where available, press the smaller button to use less water to flush the toilet
