Energy bills for millions of UK households are set to decrease by approximately 7% from 1st July, following an anticipated announcement of a new price cap by the energy regulator Ofgem. Martin Lewis, founder of Money Saving Expert, has confirmed the expected reduction, which would see the typical annual dual-fuel bill for direct debit customers fall to around £1,574.
This marks a significant drop from the current cap of £1,690, offering some relief to consumers who have faced historically high energy costs over the past two years. The main driver behind this decrease is the continued fall in wholesale energy prices, which suppliers pay for gas and electricity before selling it on to households. While the overall cap is coming down, the daily standing charge, a fixed fee paid regardless of energy consumption, remains a point of contention for consumer groups and Mr Lewis himself.
The energy price cap limits the amount energy suppliers can charge per unit of gas and electricity, as well as the standing charge, for customers on standard variable tariffs. It is reviewed quarterly by Ofgem, with the next announcement expected later this week. The cap does not apply to those on fixed-rate tariffs, though such deals have largely disappeared from the market since the energy crisis began.
For households, the reduction means a noticeable saving on their monthly outgoings, particularly welcome as other cost of living pressures persist. However, it is important to note that energy bills remain significantly higher than pre-crisis levels. Before the energy crisis escalated in late 2021, a typical annual bill was closer to £1,100-£1,200. The Government's Energy Price Guarantee, which subsidised bills, ended in June 2023, leaving households fully exposed to the cap's fluctuations.
While the overall reduction is positive, concerns persist regarding the structure of energy pricing, particularly the standing charge. Consumer advocates argue that the fixed daily fee disproportionately impacts low-energy users and those struggling to afford their bills, as it must be paid regardless of consumption. Calls for a reform of the standing charge system have been made to both Ofgem and the Department for Energy Security and Net Zero.
The Labour Party has previously called for a 'social tariff' to help vulnerable households with energy costs, alongside a more robust approach to tackling the long-term drivers of high energy prices. The Liberal Democrats have also advocated for a reduction in the standing charge. The Government, through the Department for Energy Security and Net Zero, continues to monitor the energy market and has previously implemented schemes such as the Energy Bills Support Scheme to assist households.
Source: Money Saving Expert