Cost of living: A discussion about energy bill support is sparked by the Ofgem price cap

a mother with a young child

The debate over government assistance with household energy bills will become more heated once the industry regulator releases more information about its price cap.

Because the price that consumers pay for each unit of gas and electricity is capped by a government guarantee, Ofgem's announcement will have no impact on that price.

However, it is likely to demonstrate that the cost of support to the government is less than was initially anticipated.

Ministers, according to activists, should halt an increase in energy prices in April.

Although the policy was still being reviewed, Chancellor Jeremy Hunt previously told the BBC that he did not believe the government had the "headroom to make a major new initiative to help people.".

A household using a typical amount of gas and electricity in England, Wales, and Scotland is currently paying £2,500 per year for energy under the government's Energy Price Guarantee (EPG). That annual bill would have been £4,279 since January without government assistance.

The EPG will be less generous starting in April, as the chancellor has already announced, costing the average household £3,000 annually.

Ofgem will reveal later on Monday what the cost of that bill from April to July would have been in the absence of the guarantee. Due to declining wholesale prices, analysts at consultancy firm Cornwall Insight estimate that to be £3,295.

The difference between the guarantee and Ofgem's cap is given to energy suppliers as compensation.

The EPG started in October of last year and will last until April of 2024. The potential cost to the government may be billions of pounds lower than initially estimated, but it will still come to just under £30 billion.

Such numbers were extremely volatile and still might be. According to the government, the "savings" would not come from a fund that could be used elsewhere but rather from money that was not borrowed. The figures have however prompted a number of charities and advocacy groups to call on the government to change its mind about raising the average annual bill from £2,500 to £3,000 in April.

Martin Lewis, a consumer finance expert, called the bill increase a "national act of harm.". The same call has been made by both Labour and the TUC.

"At next month's Budget, the government must reverse its impending increase in household energy costs. Sky-high bills are forcing families across Britain to the breaking point, according to TUC general secretary Paul Nowak.

The Liberal Democrats have taken their demand for lower energy prices a step further.

Suppliers are required to notify customers of price increases one month in advance, so letters will be delivered this week, two weeks before the Budget.

Like any energy price cap, the government guarantee does not place a cap on the overall cost. It restricts the price of an energy unit.

The annual bill for a household using the average amount of gas and electricity, which is expected to be £3,000 in April, reflects this. However, a renter in a compact, well-insulated apartment will use less energy and spend less. A person who lives in a big, drafty house will pay more.

Energy bills graphic

This winter, the government reduced everyone's bills by an additional £400, with six monthly discounts on bills totaling about £67. However, this support ends in April. Lump sum payments are also available in Northern Ireland, where the market is more intricate and there are many households that use heating oil.

Cost-of-living payments, which can be worth hundreds of pounds, will still be given to pensioners, people with disabilities, and low-income households in the UK.

Despite the assistance, the nonprofit National Energy Action predicts that 1.5 million more households will experience fuel poverty as a result of the bill increases in April (typically defined as spending more than 10% of their income on energy).

The amount of standing charges that households will be required to pay will also be updated in Ofgem's announcement later. The fixed daily rates listed here are what you will pay to have a gas and electricity connection to your house.

These fees might increase as a result of modifications to previously agreed-upon electricity transmission regulations. Currently, these are not covered by the government's guarantee, which could result in a further, albeit minor, rise in people's bills. The price will also vary depending on where you live because these vary by region.

Separately, those who pay for their energy monthly by direct debit typically pay about £250 less per year than those who pay in cash or by check upon receipt of a bill. In the past, Ofgem has claimed that these customers cost suppliers more because they were more likely to miss payments.

Due to higher fixed costs, customers with top-up prepayment meters also pay £55 more annually than those with typical direct debit accounts.

Later on, Ofgem is anticipated to update the figures to reflect the variations in bills for the different payment methods.

According to projections, household bills will drop below the government guarantee by July and once again be subject to Ofgem's cap.

Additionally, this would decrease the amount of windfall taxes paid to the government.

It might also bring back competition among suppliers of fixed deals for households.

Jonathan Brearley, the CEO of Ofgem, cautioned customers to exercise caution and "do your homework" regarding potential price changes before making a choice.

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