Are utility bills about to fall with return of Ofgem price cap?
An announcement in late May will herald a fall in gas and electricity bills from July. (Source: Ofgem, Cornwall Insights.)
Last year the Ofgem price cap rise dominated headlines with its 54% increase – from £1,277 a year to £1,971. This leap caused a flurry of government measures, including £150 council tax rebates, followed by a universal £400 payment and the introduction of an Energy Price Guarantee (EPG).
The cap (and the EPG) were not actually limits on total household energy costs – just a regionally based ceiling on the standing and unit charges that suppliers could levy. It was all a little confusing. In the March 2023 Budget, the Chancellor added a further twist by deferring a £500 increase in the EPG to £3,000 from April to July 2023.
Since last October, the EPG has been lower than the Ofgem price cap, meaning the Ofgem measure lost its relevance for us – the consumers. Meanwhile the government has been forced to meet the large discrepancy between the two. From July, the situation changes.
The new Ofgem price cap for the three months beginning 1st July will be £2,074, 32% less than its April – June figure. This means the EPG will become irrelevant, the government won’t need to subsidise domestic bills and consumers will pay less.
On current estimates from Cornwall Insights, the next two iterations of Ofgem price caps (October – December 2023 and January – March 2024) will be close to the July quarter and well below the EPG. Thereafter, the EPG disappears, leaving the Ofgem cap the sole price arbiter.
We might find that the July switchback to Ofgem encourages some providers to offer fixed rate deals – at the moment over 90% of domestic users are on the standard variable tariff, which not so long ago was considered the worst deal. As with many other financial decisions, you may find yourself wondering how much you are prepared to pay for certainty (such as a two-year fix) over the uncertainty (variable rates) that might deliver lower – or higher – costs.
As always, we’re here to talk.
