Martin Lewis: Why the Energy Price Cap will fall in April, but we’re all set to pay 20% more
The Energy Price Cap will fall by 23% in April 2023, to £3,280/year for a typical household, but energy bills are currently controlled by the Energy Price Guarantee (EPG) – and this is set to rise by 20% from 1 April. MoneySavingExpert.com's founder Martin Lewis explained what you need to know NOW about energy bills on ITV's Good Morning Britain. Watch the clip below or read on to find out more.
Update: 15 March 2023: In a campaign win for Martin Lewis and MoneySavingExpert.com, the Government has today confirmed that it will keep the Energy Price Guarantee at £2,500 a year for three months from 1 April. This, in effect, cancels the planned 20% hike, which would have seen typical bills rise to £3,000 a year - though prices will still rise from April as the £66/£67 a month Energy Bill Support Scheme ends. See Energy Price Guarantee update for the latest.
The clip above has been taken from ITV's Good Morning Britain on Monday 27 February 2023, with the permission of ITV Studios. All rights reserved. Watch the full episode on ITVX.
How is the Price Cap changing?
The Cap changes every three months and is falling due to the lower wholesale energy prices in recent months. However, no one pays the full amount under the Price Cap right now, as the EPG – which started on 1 October – gives a discount off these rates to all households.
Currently, the price cap is £4,279/year, with the EPG discount bringing the price for a typical household down to £2,500/year, with the Government offsetting the difference. In April, the EPG is set to rise by 20% to £3,000/year, at the same time as the £400 energy bill support ends, so households will feel an even bigger impact. This is despite falling wholesale costs meaning the cost to the Government of subsidising bills will be a lot less than it budgeted for.
This is why MoneySavingExpert and founder Martin Lewis have been urging Chancellor Jeremy Hunt to postpone the rise – a plea now backed by more than 85 other organisations.
We don’t yet have the exact EPG rates under the new cap from April, but we're expecting the Government to publish these rates in the coming days (unless it decides to postpone the hike). One impact of the Price Cap change we'll be monitoring is while the overall level is based on the EPG, the cap can change the balance of cost between direct debit, prepay and payment in receipt of bills. We’ll update our Energy guarantee rates guide when we get them, so you can see how it'll affect your bills.
How the Energy Price Cap and Price Guarantee work
The Cap sets a limit on the maximum amount suppliers can charge customers on standard tariffs for each unit of gas and electricity they use, and sets a maximum daily standing charge (what you pay to have your home connected to the grid) - see how the price cap is set.
In October, it was due to rise a massive 80% to £3,549/year on typical use. However, the Government stepped in to limit the increases to energy bills through the Energy Price Guarantee scheme.
The Government applies a discount on the gas and electricity rates under the price cap – currently of around 10p per kilowatt hour (kWh) on gas unit rates and 34p/kWh on electricity unit rates – which is paid to the energy suppliers and passed on to households. With this discount, someone on typical use pays £2,500/year, rather than the full £4,279/year under Ofgem's Price Cap methodology – so the state is essentially subsidising the difference of a typical £1,779/year.
In April, the level of the EPG is set to rise to a typical £3,000/year (though we're still campaigning against this hike). Unless anything changes, later this week, the Government will confirm the new EPG discount, to take typical prices down to that level. This level of support will be in place until the end of March 2024.
However, this is unlikely to be needed, as if Ofgem's Cap falls below the level of the EPG, households will pay the lower amount. This is predicted to happen in July, with analysts Cornwall Insight forecasting the price cap to fall to £2,153 a year, and staying around that level when it changes again in October.
See our Energy Price Guarantee need-to-knows for full info and our Energy Price Guarantee unit rates guide.
What you should be doing now to help yourself
There are no regular tariffs meaningfully cheaper than the price guarantee, so you can't switch and save right now. Yet there are three areas to focus on...
- Try to cut your energy usage. There are lots of ways to easily reduce what you use. Try our new interactive energy saving tool, where you can click around a virtual house to find out how much things cost to run and how to cut back. Also, see more Energy saving tips, the Energy mythbusters guide for less clear-cut issues, and our Heat the human guide.
- Check you're paying the right amount. You can use our 'Direct debit too high?' calculator to check.
- Have you got all the help you qualify for? First check you've got the £400 help all households are eligible for – important as some on prepay meters haven't claimed theirs. Plus if you can't pay, check our Struggling to pay – energy help guide.
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