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British household bills are set to fall after the government re-categorised certain subsidy charges and axed an energy efficiency scheme, bringing the energy price cap lower.
Ofgem, the energy regulator, has lowered the cap by 7 per cent for the April to June period, bringing it to a level that will see typical households pay £1,641 per year, down from £1,758 currently.
The price cap covers accounts on default tariffs, which currently applies to about 60 per cent of the market. Fixed-tariff accounts will also benefit from the reductions in policy costs introduced by the government.
In its Autumn Budget, the government said it would use taxation to pay three-quarters of households’ contribution to the renewables obligation subsidy scheme and end the ECO energy efficiency scheme, for which consumers had been paying via their bills.
Wholesale prices have also fallen. However, the reductions were offset by a roughly £66 per typical household, or 17 per cent, increase in the costs for upgrading and maintaining electricity and gas networks.
Ed Miliband, the energy secretary, is under pressure to meet the government’s goal of cutting bills by up to £300 a year by 2030.
Wednesday’s reductions mean the price cap — which is reset every three months — is at its lowest level since the summer of 2024. However, it remains higher than it was before the energy crisis in 2021 and 2022, chiefly due to higher wholesale and network costs.
The latter is expected to continue rising this decade due to investments such as new cables to transport electricity from new wind farms on remote parts of the Scottish coast.
“A fall in energy prices is welcome but for many people bills remain stubbornly high,” said Dame Clare Moriarty, chief executive of Citizens Advice, an organisation that assists people with debt and consumer issues.
Market experts Cornwall Insight said they currently expected the cap to reach £1,645 a year from July, although that would evolve depending on wholesale prices.
The cap limits how much suppliers can charge households on default tariffs per unit of gas and electricity sold and the daily standing charge, varying slightly by region and payment method.
On average, the cap on the unit rate is falling from 27.69 pence per kilowatt-hour to 24.67 pence per kilowatt-hour for electricity, and from 5.93 pence per kilowatt-hour to 5.74 pence per kilowatt-hour for gas.
The cap on the standing charge will rise from 54.75 pence per day to 57.21 pence per day for electricity, and fall from 35.09 pence per day to 29.09 pence per day for gas.
As well as the change to the price cap, all energy suppliers will also be legally obliged to apply the government’s cuts to policy costs to the roughly 40 per cent of accounts on fixed tariffs.
Miliband will issue a legally binding directive to suppliers to pass on the reductions for the remaining length of the deal.
High users of electricity could see even larger cuts to annual bills, with government predictions showing a price reduction of nearly £450 a year for the 2mn or so households that use electric storage heaters.