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Energy price cap to fall but bills to include ‘temporary’ charge to help tackle record debt

The energy price cap is to fall by £20 a month, the industry regulator has announced, but households are to face an additional “temporary” charge to help suppliers support struggling customers with record levels of debt.

Ofgem confirmed a 12% price cap reduction will take effect from 1 April, taking the annual energy bill for a typical household paying by direct debit for gas and electricity to £1,690.

The current level, in place from January to March, is £1,928.

The fall reflects lower wholesale prices, with natural gas costs over the peak winter season coming in lower across Europe due to higher stockpiles.

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Another mild winter over the winter months to date has been a factor in the drop.

The adjustment by Ofgem, while some relief for household budgets squeezed by the tough economy, still leaves the cap more than 50% higher than pre-crisis levels.

The regulator confirmed alongside the cap figure that it was taking action to tackle arrears in bills, though prepayment meter customers would not be affected.

It said that household energy debt had reached £3.1bn and the lower cap figure did nothing to ease its worries about affordability.

A handheld SSE smart meter for household energy usage is held next to an energy-efficient LED light bulb. Families across Great Britain will find out on Friday how tough energy bills will be this winter but they may have to wait to discover what the Government will do to help Picture date: Thursday August 25, 2022.
Image: Ofgem’s plans aim to bolster support for energy customers in debt to their suppliers. Pic: PA

“To address this challenge in the short-term, Ofgem will allow a temporary additional payment of £28 per year (equivalent to £2.33 per month) to make sure suppliers have sufficient funds to support customers who are struggling”, its statement said.

“This will be added to the bills of customers who pay by direct debit or standard credit and is partly offset by the termination of an allowance worth £11 per year that covered debt costs related to the COVID pandemic.”

Ofgem said it was also taking action to further close the gap between the higher charges that prepayment meter customers pay and what most other households face.

It said prepayment meter customers will save around £49 per year while those on direct debit customers will pay £10 per year more.

The watchdog said that the new figures, taken together, meant that bills would still fall to their lowest level since Russia’s invasion of Ukraine in February 2022.

Image: Ofgem says lower unit charges will mean that bills will fall for everyone in April, despite the debt aid elements. Pic: iStock

Russia’s vast gas supplies to the continent were shut down shortly after its military action began.

Much of the void has been filled by additional supplies from Norway and heightened shipments of liquefied natural gas (LNG).

Market experts have warned that a return to pre-crisis energy prices is unlikely to occur given the new realities over the source of supply hampered, in the short term at least, by attacks on shipping in the Red Sea that have forced LNG cargos to make longer journeys.

The trend of higher prices has led to questions over whether the price cap, initially introduced to prevent rip-off charges, has become a barrier to competition. Ofgem is working with the government to address the cap’s future.

It is now utilised by the vast majority of homes in the wake of the supplier crisis that began in 2021 that saw dozens of operators collapse, including Bulb.

Fixed deals have been hard to come by ever since but there are some that have undercut the price cap.

Read more:
What is the price cap – and how will it affect my bills?

Research for professional services firm KPMG, released separately on Friday, suggested that 48% of households believed the price cap was a barrier to fixed-term offers by suppliers.

A third of respondents said they no longer shopped around because of the cap.

Simon Virley, head of energy and natural resources at KPMG in the UK, said: “The price cap was always intended to be a temporary measure to protect ‘sticky’ customers, while the energy market was reformed.

“But this protection appears to have come at some cost in terms of limiting choice and stifling innovation.

“We now need a national conversation about the future of our retail energy market – one that balances appropriate consumer protection with incentives for investment and innovation in a smarter energy system that benefits all consumers.”

Sky News Source