The energy price guarantee is now set to end in April next year – here's what the change means for your bills
The energy price guarantee, which was introduced on 1 October to protect households from a hideous 80% increase in energy bills, will now only last until April 2023, rather than for the next two years as originally planned. Here's what we know so far, and how the shake-up could impact your future bills.
On 17 October, the new Chancellor Jeremy Hunt announced that there will be a Treasury-led review to consider how to support households with energy bills after April 2023. However, it's likely any support will be aimed at vulnerable households, with the Government confirming the aim of the review is to come up with something that will "cost the taxpayer significantly less than planned, whilst ensuring enough support for those in need".
Other energy support for this winter will, however, continue as planned. This includes the £400 energy support payment to all households, the £650 payment for those on means-tested benefits, the £300 Winter Fuel Payment top-up and a £100 payment for households that don't use mains gas (such as those on heating oil or LPG).
Even with the energy price guarantee, energy bills this winter are nearly double what they were last winter, leaving many struggling to pay. See our What do to if you're struggling to pay your energy bills guide for full help, or our energy saving tips on how to cut your usage.
Energy bills could be hiked from April 2023 when the guarantee ends
We don't yet know fully what this means for energy bills when the energy price guarantee ends - we'll update you when we know more - but it's possible that many could be placed back on energy regulator Ofgem's price cap, which limited what suppliers could charge on their standard variable tariffs before the guarantee came in.
If this happens, it could mean a massive hike in bills for millions of people. Under the guarantee, a typical household pays an average £2,500 a year - though what you actually pay is based on what you use. But energy analysts Cornwall Insight are currently predicting April 2023's price cap to be £4,347 a year for a typical household (under Ofgem's existing cap methodology), a massive 74% more than the energy price guarantee.
This assumes Ofgem's price cap will continue in its existing format, which isn't yet confirmed and these predictions are also very early forecasts from energy analysts Cornwall Insight - we're not even in the April cap assessment period under Ofgem's methodology, which would be 17 November 2022 to 17 February 2023.
On this, MoneySavingExpert.com founder, Martin Lewis, tweeted:
If you're on a standard tariff - do nothing, for now
Yet if you're on a standard tariff, like 85% of homes in England, Scotland and Wales, it's likely best to do nothing for now. Your prices are protected under the energy price guarantee for the next six months, and are currently far cheaper than they would have been this winter had Ofgem's price cap continued. What's more, we don't know of any suppliers offering fixed deals right now anyway.
If you're on a fix - what action to take depends on how much you pay
If you're on fix, Martin explained his "best guess" - based on the limited information we know so far - is as follows:
How the energy price guarantee works
The guarantee caps the amount suppliers can charge for each unit of electricity and gas you use, as well as the standing charges. It's NOT an absolute cap, the £2,500 a year figure you see quoted is based on what a 'typical' household would pay over a year. If you use more than that, you pay more (use less, you'll pay less).
Technically, the energy price guarantee has been calculated as a reduction to the previously planned unit rates under Ofgem's price cap methodology. The Government took these rates, and applied a discount of around 4p per kilowatt (p/kWh) on gas unit rates, and 17p/kWh on electricity unit rates (standing charges remained at Ofgem's planned level).
The Government also introduced unit rate reductions for those on fixed deals. Here, you get an 'up to' reduction of the same amount on the unit rates for gas and electricity, reducing the price of your fix, at a maximum, to the same level as the energy price guarantee for standard tariffs.
See our Energy price guarantee need-to-knows for full info.