Energy Bills to Fall: UK Price Cap Drops £10/Month in April 2024
UK households are set for a modest respite from the cost-of-living crisis this spring, as energy bills are poised to fall by an average of £10 per month, or 7%, from . The reduction, announced by energy regulator Ofgem on , brings the typical annual dual-fuel bill down to £1,641 from the current £1,758.
While the decrease is welcome news for consumers, it falls slightly short of the £150 annual reduction initially promised by Chancellor Rachel Reeves in November’s budget. The discrepancy is attributed to an increase in the costs associated with running and upgrading the UK’s energy network – including power lines and gas pipes – which adds approximately £6 per month to household bills.
Why is the price cap falling?
The primary driver behind the price cap reduction is a government policy shift aimed at alleviating the financial burden on households. Reeves announced plans to remove or reallocate green levies, specifically ending the Energy Company Obligation (ECO) home insulation scheme and funding older renewable energy projects through general taxation. These changes effectively transfer costs from individual energy bills to the broader tax base.
The energy price cap, first introduced in , limits the maximum amount energy suppliers can charge per kilowatt hour (kWh) of gas or electricity, as well as setting a maximum daily standing charge. From , the maximum electricity rate will decrease to 25 pence per kWh from 28 pence, while the gas rate will remain at 6 pence per kWh. However, average daily standing charges will slightly increase from 54.75p for electricity and 35.09p for gas (totaling almost 90p) to 57.21p and 29.09p respectively, a combined total of over 86p. This shift, driven by moving the cost of the Warm Homes Discount from standing charges to unit prices, is designed to benefit low-energy users but may result in higher costs for households with greater energy demand.
Ofgem noted that wholesale energy prices have remained “stable” over the past three months, falling by 6%. However, this positive trend was partially offset by the aforementioned increase in network costs.
I am on a fixed deal. Will my bill also go down?
Yes. Households on fixed-price energy deals will also see a reduction in their bills. Suppliers have committed to passing on the full savings resulting from the government’s policy changes to customers on fixed tariffs. In other words that those already on a fixed deal as of will have their tariffs amended to reflect the lower unit rates.
Richard Neudegg, director of regulation at Uswitch.com, emphasized the broad impact of the changes. “Critically, this government-led reduction means every household in Britain will see their rates reduced from April, not just those on the typically more expensive price cap default tariff.”
Martin Lewis, founder of MoneySavingExpert.com, indicated that most fixed deals are expected to decrease by 7% to 9% in . He noted that some smaller energy suppliers were already exempt from the ECO scheme, meaning their customers had previously benefited from lower costs.
Will my bill fall by £150 regardless of how much energy I use?
No. The £150 figure cited by Chancellor Reeves is an average estimate. The actual savings will vary depending on individual energy consumption patterns. The interplay of network costs and wholesale prices means that the reduction will not be uniform across all households.
Neudegg explained, “The levy changes are mostly in the electricity unit rates, so the exact reduction in bills will vary per household, based on energy usage. What we have is not going to be a uniform £150 cut to bills. Higher-usage homes will see the biggest savings, while those using less energy may see a more modest change.”
He further pointed out that the changes to standing charges, while reducing costs for gas users, may lead to higher overall bills for households with high energy demand. The lower electricity unit price is expected to benefit high-energy users, potentially including vulnerable households reliant on medical equipment.
Analysis by the Resolution Foundation thinktank suggests that the bill reductions will disproportionately benefit lower-income households, with savings being twice as large for those in the bottom 20% of the income distribution compared to those in the top 20%.
Is this fall a one-off or can I expect bills to continue to fall?
The energy market remains volatile, and future price movements are subject to various factors. However, current projections indicate that annual energy bills across are on track to be approximately £200 lower in real terms than in .
Despite this positive outlook, energy analysts anticipate a slight increase in the price cap when it is revised in three months. Jonathan Marshall, principal economist at the Resolution Foundation, cautioned that while the current announcement is “genuinely good news,” bills remain significantly higher than pre-crisis levels and the relief may not be sustained. He highlighted the potential for rising network costs and the expiration of government support schemes in to put upward pressure on bills in the future.
Should I shop around for a better energy deal?
Yes. Ofgem encourages households to actively compare energy deals and consider switching suppliers or renegotiating their existing tariffs. Approximately 60% of households are currently on their supplier’s default tariff, but Tim Jarvis, Ofgem’s director general of markets, noted an encouraging increase in switching rates, up almost 20% year-on-year.
Jarvis emphasized that the price cap serves as a safety net, but that consumers can potentially save money by exploring alternative options. He stated that households on fixed deals saved around £115 on average last year compared to the price cap. Lewis advises consumers to use comparison websites to identify the most cost-effective deals, noting that some suppliers offer specialized tariffs, such as EV tariffs and time-of-use tariffs, that may be suitable for certain households. Several deals are currently available that offer savings exceeding £100 below the price cap.