Budget 2023: Energy Price Guarantee to remain at £2,500 in win for Martin Lewis and MSE – here's what it means for your bills
Typical household energy bills will remain at £2,500 a year for at least three months from 1 April as the Government has heeded our and others' calls to postpone a planned 20% rise. The announcement ahead of today's Budget follows a month-long campaign led by Martin Lewis, founder of MoneySavingExpert.com, which has been backed by 130 charities and consumer organisations.
Watch Martin's video briefing on what the 20% bill rise postponement means in practice, the new unit rates & standing charges, and what's happening to fixes
"Hello, I'm Martin Lewis from MoneySavingExpert.com, and I'm pleased to tell you the planned 20% rise in the Energy Price Guarantee, which dictates what bills are for most people in England, Scotland and Wales, has been postponed until July – and postponed in practice means cancelled.
"So, what I want to talk you through here is what it means in practice, in detail, what the new standing charges and unit rates will be, and what's likely to happen to fixing now we know this announcement."
What's happening to the Energy Price Guarantee
"First though, the backstory. Four weeks ago, I wrote to the Chancellor, a detailed letter, asking him to postpone the April rise until July. I explained that this 20% rise was an act of national harm, likely to be damaging for the economy, damaging for consumer confidence, damaging for business, damaging for consumers' pockets, damaging for people's mental health, and damaging for inflation.
"That letter was backed, I'm delighted to say, by 131 major charities, including National Energy Action, Which?, Citizens Advice, Alzheimer's Society. It was backed by Energy UK, the trade body of the energy retailers. The energy firms, they were also saying this is a no-brainer, don't do it.
"So, I'm very pleased today to say thank you to the Chancellor and the Secretary of State for Energy and the Government for listening to this powerful campaign. This is the right move.
"So what does it actually mean? Well, a postponement means a cancellation. And to explain that, you need to understand there are two rates that for the last year or so have been controlling what we pay on our energy bills.
"For a long time, it was the Energy Price Cap, set by the regulator, Ofgem, based on wholesale rates, the prices that energy firms pay for energy. That was going up and up and up and it was looking very worrying last summer what would be happening coming to the winter, so many people – and I was one of the voices doing this – said 'there needs to be some form of intervention'.
"The intervention the Government chose to do was to introduce the Energy Price Guarantee, which is a subsidy on energy bills. So the difference between the Energy Price Guarantee level and the Energy Price Cap level is paid for by the state.
"Now, I'm going to use typical bills here; a relatively meaningless figure, but it helps me give you the scale of magnitude. Over the winter, for someone on typical bills, the Energy Price Cap would have been over £4,000, but the Energy Price Guarantee was £2,500. And the rule is simple. Whichever of these is lower is what we pay.
"Now, the Energy Price Cap has come down, and the one in April is around £3,200. The Energy Price Guarantee is still £2,500, but it was set to rise to £3,000. So this one was still in play. But because wholesale rates have come down, the current prediction is in July, the Energy Price Cap will drop to around just over £2,000, lower than the Energy Price Guarantee.
"And we will pay the lower of the two, which means the Energy Price Guarantee, which lasts until next April – that's in April 2024 – is no longer relevant from July. Hence the campaign not to put it up temporarily for three months, let the Energy Price Cap take over in July and keep it flat until now, which is what is going to happen.
"So what does that mean for your bills? Well, it means in April, they will stay roughly flat – although I'll detail exact changes on that in a moment. But it is worth remembering at the same time as that was due to go up, we lose the winter bill support. So that's the £400, paid to us as £66, £67 a month to subsidise [our bills], either giving you cash or [money] off your bill or as a voucher to reduce what you pay. And that goes in April.
"So in practice, you will still pay more, just not as much more as you were going to be paying. And especially for those with lower usage where that £66, £67 was a disproportionate boost. Because if you're a lower user, it has a bigger effect. This is going to feel a big loss when you come to April. So you still have to be planning that you're going to need to get that money for that £66, £67 a month increase.
"From July we expect prices to then drop from the current rate. Now the prediction right now is it will drop 19%. There is some crystal-ball gazing in there. Things could vary because that's all based on wholesale rates because we're back on the Price Cap. And then it's likely to stay roughly flat for the rest of the year.
"Once we start to move into next year it really is too difficult right now to look into the crystal ball and see what's predicted to happen. And of course, I need to be honest, if there were big changes, you know, a change to the situation between Ukraine and Russia that could have massive moves on what's going on with those wholesale rates and other worldwide macroeconomic and macropolitical factors could change what happens to those rates.
"So those are predictions; they're not definite for July and October, but I think it's now unlikely that we won't see at least some form of drop on bills in July."
What's happening to the energy rates
"So what are the actual rates going to be? I need to state we have confirmation of the new Price Cap from April but we don't know the new Energy Price Guarantee. Now, the Price Cap tells us the standing charge because the Energy Price Guarantee doesn't change that; the Energy Price Guarantee just subsidises the unit rates that you pay.
"My team and I have tried to work out what these will be. I've also had a few sources that have been helping and when I showed this to the Secretary of State for Energy, Grant Shapps, on my TV show last week, I showed him two predictions; one with the Price Guarantee going up and one without it going up. He said they were in the right ballpark.
"So I'm going to give you them now. But these are not formal, and they could be a little bit wrong. So let's do electricity first, I've only got the direct debit figures, I don't have them for other forms. But this will give you a rough idea of what's going to happen in electricity.
"I know it's a nightmare, and the standing charge is a nightmare, we're likely to see the standing charge rise, well, we know the standing charge will rise again, from 46.4p to 53p a day, you will pay more a day. But because that is rising, the unit rate you pay for electricity will be falling. So that will drop from 34.04p to around 33.2p. For gas, the standing charge is rising again by, not by as much, from 28.5p a day to 29.1p a day, which means we'll see a very slight decrease in the unit rate from 10.33p to around 10.3p.
"I mean for most people, it's roughly the same, there is a slight increase for lower users because the standing charge has gone up and a slight decrease for high users because the unit rate has gone down."
What's happening to fixed energy deals
"So the last thing on my list to tell you about is the fixing market, what's going to happen there. Well, I think imminently, within the next few weeks, we're going to see the first fixes come back into the market.
"Now, that does not mean you should be jumping at them. Because the big thing here is to understand it's all about the price those fixes are set at; it is going to be a difficult call to make.
"If we just do it on typical use, we're expecting until the end of July, prices to be around £2,500, then for them to drop to £2,000 from July until the end of the year, although there's some crystal-ball gazing in that. So, you're going to want to fix at no more than the current predictions of around £2,150 a year for somebody on typical use.
"That's the scales that we would be looking at. And even then you probably won't save if the predictions are right. But that would at least give you some price certainty that things could not go up. So it will be a difficult call to make exactly when it is, and when it isn't, worth fixing. If I was offered one at £1,800 on typical use, I'd bite your hand off right now, because that gives you price security and it's likely, based on current predictions, to be cheaper.
"But I do think we're going to see fixing coming back. The market may well be very different to what it was before. And I will of course, once they start to come through, be analysing and trying to give you my best guess of whether it is worth it or not for you to fix. But we're a few weeks away from that now.
"Right now, I'm just very pleased that this campaign means that people's bills won't be going up by 20% – though you will still be paying more because you'll no longer have the £66, £67 a month [discount]."
Martin said: "A month ago, I wrote to the Chancellor asking him to postpone the 20% rise in the Energy Price Guarantee. That letter was supported by 131 major charities including Which?, National Energy Action, Citizens Advice, Alzheimer's Society and more – plus Energy UK, the energy industry trade body.
"I'd like to thank the Chancellor for listening. The rise – which would likely only have lasted three months – would have caused disproportionate harm financially and, with more price rise letters, to people's mental health.
"Of course, this doesn't mean bills will get cheaper. In April we see the end of the winter energy support – the £66/£67 a month everyone has received to lower their bills. So in practical terms people are still going to pay more than they have been, but at least some of the planned rise has been forestalled.
"Now we have to hope that the current predictions come true, that from July, the current wholesale prices will mean the Price Cap drops, and therefore bills fall by 19% – a welcome relief to millions."
Typical energy bills will remain at £2,500, though bills will still rise from 1 April
Chancellor Jeremy Hunt says the Energy Price Guarantee (EPG), which is essentially a subsidy from the state off the Price Cap rates, will remain at £2,500 a year for a typical household for at least three months from 1 April. It had been due to rise to £3,000 a year, but falling wholesale prices has meant that the EPG will likely cost a lot less than expected giving significant headroom to enable a postponement.
On the morning of Friday 3 March, Martin told Nick Robinson on BBC Radio 4's Today programme that the EPG rise was likely to be scrapped, as energy firms were preparing for it not to go ahead.
The Chancellor today said: "High energy bills are one of the biggest worries for families, which is why we're maintaining the Energy Price Guarantee at its current level. With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too."
The planned EPG increase also coincided with the end of the Energy Bills Support Scheme (EBSS), which has seen households receiving £400 in bill support over six months from October to March. The two changes combined would have seen many facing an effective annual price hike of 40%. That EBSS will end as scheduled, so households will still see bills rise in April, despite the postponement of the EPG increase.
MSE's Energy Price Guarantee calculator: How much you'll pay from April?
If you're on a standard tariff (most are), plug your figures into our Energy Price Guarantee calculator for an estimate of what you'll pay under the from 1 April 2023 until 30 June 2023 - factoring in the end of the £400 support that all households have been getting and slight tweaks to the standing charges and unit rates that will also see a shift in costs.
On current forecasts, the EPG should be replaced by a lower Energy Price Cap from July. Regulator Ofgem announced earlier this month that its Price Cap would fall by 23% from April to June to £3,280 a year for typical users. But analysts at Cornwall Insight predict this could fall to £2,013 a year from 1 July and to £2,003 a year from 1 October. As consumers pay the lower of the two, it means the EPG will no longer be needed from July.
Prepayment meter customers will also pay less for energy from 1 July after the Chancellor confirmed that these users will no longer pay more compared with people on direct debits.
Below is a copy of the letter that the Chancellor sent to Martin on the Energy Price Guarantee (click through to Twitter to hear the letter via alt text):
More than 130 organisations supported Martin and MSE's call
In February, Martin first wrote to the Chancellor urging him to continue energy bills support at current levels by postponing the planned rise in the Energy Price Guarantee.
Since the letter was sent on Thursday 9 February, 131 organisations have come out in support of Martin and MSE's call to postpone the hike:
The full list is as follows: 1. 38 Degrees. 2. Action for Children. 3. Action for M.E.. 4. Advice for Renters. 5. Advice UK. 6. Age UK. 7. Alex The Leukodystrophy Charity. 8. Alexandra Rose Charity. 9. Alzheimer's Society. 10. Anthony Nolan. 11. Arthritis Action. 12. Asthma + Lung UK. 13. Barnardo's. 14. Big Issue Foundation. 15. Blind Veterans UK. 16. Cancer Support UK. 17. Centre For Ageing Better. 18. Centre for Sustainable Energy. 19. Charities Aid Foundation. 20. Charity Finance Group. 21. Chartered Institute of Housing. 22. Child Poverty Action Group. 23. Christians Against Poverty. 24. Citizens Advice. 25. Citizens Advice Scotland. 26. Coeliac UK. 27. Community Integrated Care. 28. Crohn's & Colitis UK. 29. Cystic Fibrosis Trust. 30. Daughters of Charity Services. 31. Debt Free Advice. 32. Diabetes UK. 33. Disability Benefits Consortium. 34. Disability Rights UK. 35. Down's Syndrome Association. 36. End Child Poverty. 37. End Fuel Poverty Coalition. 38. End Furniture Poverty. 39. Energy Action Scotland. 40. Environment Centre Swansea. 41. Epilepsy Action. 42. Epilepsy Society. 43. Fair By Design. 44. Fairer Housing. 45. Family Fund. 46. FareShare. 47. Feeding Britain. 48. FND Hope UK. 49. Food Train Scotland. 50. Forget Me Not Children's Hospice. 51. Fuel Bank Foundation. 52. Gingerbread. 53. Greater Manchester Poverty Action. 54. Green Alliance. 55. Guide Dogs for the Blind Association. 56. Headway. 57. Huntington's Disease Association. 58. Inclusion Barnet. 59. Independent Age. 60. Independent Food Aid Network. 61. Joseph Rowntree Foundation. 62. Just Fair. 63. Kidney Care UK. 64. Leonard Cheshire. 65. Leukaemia Care. 66. Macmillan Cancer Support. 67. Mencap. 68. MND Association. 69. Money Advice Scotland. 70. Money Advice Trust. 71. Money and Mental Health Policy Institute. 72. MS Society. 73. MS Trust. 74. Multiple System Atrophy Trust. 75. National Autistic Society. 76. National Energy Action. 77. National Energy Foundation. 78. National Pensioners Convention. 79. National Zakat Foundation. 80. National Council for Voluntary Organisations. 81. Nesta. 82. North East Child Poverty Commission. 83. OCD UK. 84. P3 Charity Parkinson's UK. 85. Polio Survivors' Network. 86. PSP Association. 87. Rainbow Trust Children's Charity. 89. Reframe Coaching. 90. Refuge. 91. Retail Trust. 92. Rethink Mental Illness. 93. RNIB. 94. Rural Coffee Caravan. 95. Samaritans. 96. Scope. 97. Sense. 98. Shine Charity. 99. South West London Law Centres. 100. Spina Bifida Hydrocephalus Scotland. 101. Spinal Injuries Scotland. 102. StepChange. 103. Stroke Association. 104. Students Organising for Sustainability. 105. Talk Club. 106. The Kaleidoscope Plus Group. 107. The Money Charity. 108. The National Kidney Federation. 109. The National Youth Agency. 110. The Neurological Alliance. 111. The Poverty Alliance. 112. The Rebuild Group. 113. Thomas Pocklington Trust. 114. Together for Short Lives. 115. Tourettes Action. 116. Trussell Trust. 117. TTP Network. 118. UK Men's Sheds Association. 119. UK Youth. 120. Warm This Winter. 121. Warm Wales. 122. WellChild. 123. Welsh Local Government Association. 124. Which? 125. Women's Budget Group. 126. Yorkshire Energy Doctor CIC. 127. Young Lives vs Cancer. 128. Your Own Place. 129. Your Pay Your Way. 130. Z2K (Zacchaeus 2000 Trust).
Energy UK, the trade association for the energy industry, has also come out in support of the call.
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 appliances 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.