In April, typical domestic energy bills in the UK will increase, but experts predict that prices will drop in July, leading to renewed competition and customer switching. Currently, a government guarantee limits the annual gas and electricity bill for an average home to £2,500, with an additional £400 discount. However, this cap will rise to £3,000 in April. Analysts predict that the limit will soon become redundant, with a typical bill dropping back to £2,153 in July, and remaining close to that level for the rest of the year.

Good News for Energy Prices

While this is positive news, stretched households will not see much benefit before July. Later in the year, conditions could lead to the return of competitive tariffs, providing consumers with the chance to control their energy bills by comparing energy deals

The expected drops in prices mean the total cost of subsidising energy bills will be lower than previously expected, leading to calls for the government to use the savings to further support billpayers. The Labour Party has also called for a three-month extension to the current government guarantee.

UK Government Steps in With Financial Support

The UK energy regulator, Ofgem, caps the price per unit of energy in England, Wales, and Scotland at what is considered an appropriate level. The cap is set every three months. Huge costs faced by suppliers would have left a household using a typical amount of gas and electricity paying £4,279 a year from the start of January. To help with these costs, the government has introduced the Energy Price Guarantee (EPG). Currently, the typical household pays £2,500 a year, rising to £3,000 a year in April. Without the EPG, the annual bill for a typical household would be around £3,295 in April.

If the EPG limit were to increase to £3,000 as planned, the estimated cost to the government would be £26.8bn. If it were to remain at £2,500, the estimated cost would be £29.4bn. Any decision by the government to scrap plans to raise the EPG limit to £3,000 would be made at next month’s Budget. However, Chancellor Jeremy Hunt has stated that households are unlikely to receive extra support with energy bills from April.

Martin Lewis Says

Consumer finance expert Martin Lewis believes that allowing the bill increase in April would be a “national act of harm,” a view supported by poverty charities. The actual figure for the price cap will be published by Ofgem next Monday, but this will be largely irrelevant to households due to the EPG, which limits the price they pay. However, it is important in terms of how much the government and ultimately taxpayers must contribute to compensate suppliers by capping domestic bills.