Financial journalist Martin Lewis believes it's likely that the EPG increase will be delayed
Ofgem will drop its cap on the amount energy suppliers are able to charge by around £1,000, the energy regulator announced on Monday.
However, analysts believe bills will still rise by an average of £500.
ITV News looks at why this is and whether this increase could be delayed.
What is the energy price cap?
The energy price cap sets a maximum price that energy suppliers can charge consumers for each kilowatt hour (kWh) of energy they use. How much individual households pay depends on how much energy they use.
Ofgem announced that it will drop its cap on the amount energy suppliers are able to charge by around £1,000 to £3,295, effective from 1 April.
Why are bills set to go up despite the price cap falling?
Analysts have warned customers are set to pay about 20% more on their bills – approximately £500 – as the government’s additional support in the form of the Energy Price Guarantee (EPG) only partially protects consumers from paying the full amount under the price cap.
The EPG limits the amount that domestic customers pay to 34p per kilowatt hour (kWh) for electricity and 10.3p per kWh for gas – which works out at £2,500 per year for the average household – with the government picking up the difference between Ofgem’s price cap and the EPG.
This support is set to become less generous from the beginning of April, rising to an average bill of £3,000.
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When the upcoming end of the £400 energy rebate scheme – paid in six instalments of £66 and £67 a month – is factored in, the energy cost for households will increase even more.
Ofgem’s price cap is currently set at £4,279 per year for the average household, meaning the government has probably been paying about £1,779 per year to energy suppliers on average for every household they serve between September and March.
The predicted fall of the Ofgem price cap to £3,295, and the rise of the energy price guarantee level to £3,000, means the government will be paying just £295 per household per year from April to June.
Is there any chance the EPG won't increase?
Financial journalist Martin Lewis, on the other hand, believes it's likely that the EPG increase will be delayed. "Reading the rooms... I now think that there is a good chance the government will not do the 20% increase on the 1st of April," Mr Lewis said on ITV's Good Morning Britain. He believes the government will postpone the increase as a result of his campaign - backed by national charities and energy retailers - calling for it to do so.
Mr Lewis wrote to the chancellor: "This decision to increase prices was made at a time when wholesale rates were looking to be far higher than they are now. In fact, on current predictions the EPG subsidy may well only be needed from April to July. After that, the underlying price cap currently looks like it may be cheaper than even the current EPG rate of £2,500 a year for a typical household. "This means the provisioned government expenditure on the energy subsidy will be billions less than expected when the plans were made, giving significant headroom to enable a postponement."
Will bills continue to decrease?
Ofgem’s dropping of its price cap reflects a significant drop in the wholesale price of energy. If this continues – and all current indications are that it will – prices paid by consumers by the summer will drop for the first time since the global gas crisis took hold more than 18 months ago. Analyst Cornwall Insight said it expects the price cap to fall further – to £2,153 in July and £2,161 from October.
What help is available for those struggling with energy bills?
If you’re feeling overwhelmed by the cost of your energy bills, it’s recommended that you first get in contact with your supplier. They are legally obliged to help and work with you on a payment plan, which will spread your payments out and ideally make them more affordable.
British Gas, E.On and Octopus are among the companies offering hardship funds and grants to customers who are in energy debt. You do not need to be a customer to apply for them.
Until March 31, some residents in England and Wales are eligible to receive the Cold Weather Payment - a scheme designed to support people with their heating expenses during periods of particularly cold weather.
Millions of households on low incomes will receive fresh cost-of-living support from this spring. More than eight million means-tested benefits claimants will be sent £900 in cash support.
All households in England, Scotland and Wales have been receiving £400 in energy bill discounts. The support is being issued in six instalments over six months - starting in November 2022 and ending in March 2023.
It is worth remembering we are moving into the warmer months, giving households a better chance of being able to cut back on their heating and electricity usage.