Fears millions may stay in ‘impossible debt’ despite Ofgem price cap drop

Ofgem’s new energy price cap offers a saving of around £20 a month

Households will see energy bills fall to the lowest level in more than two years after regulator Ofgem announced a reduction in its price cap.

The fall, which comes amid the cost-of-living crisis, will be £1,690 from April 2024 - a fall of £238 for the average dual-fuel household over the course of a year.

If you prepay for your energy, prices are also set to fall by 14 per cent to £1,643 a year, while those who pay on receipt of bill will see a 13 per cent drop to £1,796 a year.

The 12 per cent average fall - working out at around £20 a month - is due to come into effect on 1 April until the end of June for around 30 million households in England, Wales and Scotland.

But the National Energy Action charity warned 6 million households would still be in “fuel poverty” in April - defined as households who spend 10 per cent of income on energy.

“Households in fuel poverty, on negative budgets and in impossible debt will see no chink of light this morning,” Adam Scorer, the charity’s chief executive said.

Ofgem said it expected more consumers to switch providers over the coming months (PA Wire)

The energy cap reaches, which resets every three months, is at its lowest level since Russia’s invasion of Ukraine in February 2022 which Ofgem said drove up costs for suppliers and ultimately customers.

Despite this, bills remain 49 per cent higher than pre-energy crisis levels, with figures from the charity National Energy Action showing six million households remain in fuel poverty. This is compared to 4.5 million in October 2021.

Jonathan Brearley, CEO of Ofgem, also announced standing charges will be levelled to remove the “premium” paid upfront by those with a prepayment meter.

(Ofgem)

He said: “This is good news to see the price cap drop to its lowest level in more than two years – and to see energy bills for the average household drop by £690 since the peak of the crisis – but there are still big issues that we must tackle head-on to ensure we build a system that’s more resilient for the long term and fairer to customers.”

Ofgem said the solution must be funded by bill-payers rather than taxpayers, to maintain fairness, meaning prepayment customers will save around £49 per year while direct debit customers will pay £10 more each year.

Responding to the announcement, money saving expert Martin Lewis posted on X: “It’s an improvement, and predictions are it’ll drop again in July, though overall prices are still too expensive, nearly double the price of the cheapest pre-crisis.”

He unveiled his five top tips beginning with the revelation that prepay meters will become the cheapest way to pay.

Mr Lewis said: “Prepay, which many of the most vulnerable use, was always the rip-off, so this is a staggering turnaround.”

“I strongly suspect direct debit will stay by far the overall cheapest for people who switch, but for those who don’t, it’ll be prepay.”

He pointed out that standing charges for direct debit will rise to £334, urged Ofgem to throw the “kitchen sink” at getting people cheaper deals after they removed the Market Stabilisation Charge and showed how you can undercut the price cap by 3 per cent on the Eon Next Pledge tariff.

Lynn Wells, a client assisted by National Energy Action, says: “Of course, bills falling will make a difference, but it will still be too much for me to cope with.

“I do everything I can to keep my bills down. I’ve got an egg timer in my shower to keep them short. I’ve got foil behind radiators, sealants on the doors, I don’t have my heating on – my home stays around 12 to 15°C. Coming home to a cold home, with my osteoporosis, is really hard.

“I’ve been to food banks – I’ve seen carers and even police community support officers queuing up to get food for their families. The government should be providing more support for people’s energy bills.”

(Ofgem)

Citizens Advice chief executive Dame Clare Moriarty said more than five million people will remain behind on their energy bills despite the fall.

She said: “The government promised a new plan for energy bill support by April 2024, but will miss its own deadline. And the withdrawal of cost-of-living payments this spring will make it so much harder for many of those already finding it difficult to make ends meet. Without action, people will face a cycle of winter crises year after year.”

Unite general secretary Sharon Graham accused energy companies of profiteering and called for public ownership of energy. She said: “Everyone except the energy barons can see the system is broken. It is time our politicians made the right choices.”

Ofgem announced it is allowing a temporary additional payment of £28 a year, or £2.33 a month, to ensure suppliers have enough funds to support struggling customers.

This will be added to the bills of customers who pay by direct debit or standard credit and is to be partly offset by the end of an allowance worth £11 per year that covered debt costs related to the Covid pandemic.

Prepayment meter customers will not have to pay the extra charge, as many do not build up the same level of debt as credit customers because they top up as they go, Ofgem said.

The cap was introduced by the government in 2019 to ensure energy bills accurately reflect the cost of energy.

Over the last two years, it has significantly risen causing financial issues for a number of households across the country. In 2022, it rose from £1,215 in January to £1,877 in April, before reaching £3,371 in October.