Starting from April, Ofgem is reducing the maximum amount energy suppliers can charge consumers by almost £1,000. The regulator has cut the price cap to £3,280 from the current £4,279 due to a drop in wholesale prices.
Nonetheless, consumers will still face a hike in their annual household energy bills, with an additional £500 to be paid. This increase is due to the Government’s decision to raise its cap on bills, which was initially introduced to assist consumers through the energy crisis caused by the conflict in Ukraine.
Under the current energy price guarantee, the Treasury limits typical annual household bills to £2,500.
However, from April, the cap will be raised to £3,000, resulting in an average annual increase of £500 for households, with the Treasury paying the £280 difference to suppliers.
According to calculations by Interactive Investor, the lowest-income 10% of households will need to allocate 26% of their budget to pay for energy bills starting from April if the Government’s planned increase in the Energy Price Guarantee from £2,500 to £3,000 per year goes ahead.
This represents a significant increase from the current 16% of the budget that poorer households in average-sized homes spend on energy bills.
Myron Jobson, Senior Personal Finance Analyst at Interactive Investor, has cautioned that UK households are set to experience another challenging April, with the added burden of unprecedented financial pressures.
“The recent drop in energy prices is a positive indication that the energy crisis is showing signs of ending, and raises hopes that the energy price cap may fall below the government’s energy guarantee ceiling by this summer. If the guarantee were not in effect, average energy bill payers would be spending 157% more on their bills from April than they did during the winter of 2021/2022. However, many households will continue to spend more on energy until July.
Although the state is covering the difference via the price guarantee, this initiative is expensive for the government to sustain, particularly as it is raising taxes and reducing public spending to address a significant hole in public finances. While the support was always intended to be a short-term solution, it expires just as other essential household expenses, such as council tax, broadband, and water and sewage bills, are anticipated to rise.
This is a concerning indication that finances are under strain and that financial resilience is being tested like never before.”
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