Energy price cap to fall by 7% from July

Energy regulator Ofgem has announced a 7% reduction of the energy price cap for the period covering July to September 2025.

A recent fall in wholesale prices is the main driver of the overall reduction, accounting for around 90% of the fall. The remainder is primarily due to changes to the operating cost allowances energy suppliers can recover. Direct Debit and prepayment customers will see standing charges fall by around £19 per year on average.

The price cap – which sets a maximum rate per unit and standing charge that can be billed to customers for their energy use – will fall by £129 for an average household per year, or around £11 a month, over the three-month period of the price cap.

For an average household paying by Direct Debit for dual fuel this equates to £1,720 per year. This is £660 (28%) lower than the height of the energy crisis at the start of 2023 when the government implemented the energy price guarantee. However, prices remain high with the upcoming level £152 (10%) higher than the same period last year.

Tim Jarvis, Director General of Markets at Ofgem, said “A fall in the price cap will be welcome news for consumers, and reflects a reduction in the international price of wholesale gas. However, we’re acutely aware that prices remain high, and some continue to struggle with the cost of energy.

“The first thing I want to remind people is that you don’t have to pay the price cap – there are better deals out there so it’s important to shop around, and talk to your existing supplier about the best deal they can offer you. And changing your payment method to direct debit or smart pay as you go can save you up to £136.

“In the longer term, we need an energy system where prices are insulated from the volatile international gas market, and which ensures more stable prices and energy security. And we’re working closely with government to get the investment we need to reach our clean power and net zero targets as quickly as possible.

“We’re also doing everything we can to support consumers today and pushing ahead with more changes to help consumers. This includes working on ways to support those trapped in energy debt and bringing in  reforms to standing charge tariffs for this winter.”

Shopping around for a fixed tariff has the potential to save some consumers around £200 on traditional fixed tariffs compared to the upcoming price cap level.

Currently 35% of customers are on a fixed tariff, up from just 15% a year ago when fewer offers were available.

Ofgem has also confirmed that from 1st July, standing charges for households paying by direct debit and prepayment will reduce by around £19 on average. This follows the regulator’s decision on the operating cost and debt allowances review.

Operating costs are a key part of the energy price cap. They refer to the costs of running an energy supply business, such as the call centres and metering systems required to serve customers. They also include the costs incurred by suppliers of customers who fall behind on their bills, known as debt-related costs.

Ofgem has carried out its first full review of supplier operating costs since the price cap was introduced in 2019. This is to ensure that costs are fair, accurate, and reflective of the current climate.  While costs associated with consumer debt have increased, suppliers have become increasingly efficient and resilient, and as a result operating costs have fallen – creating lasting savings for customers.

Richard Lane, Chief Client Officer at StepChange Debt Charity, said “This is the first fall in the energy price cap we’ve seen for a year, but it’s fair to say it’ll have a minimal impact, both on the households already struggling to meet these costs and for those already deep in the red with their energy bills – many of whom have been hit hard by other bill rises in April. Our data shows energy arrears continue to rise among our clients seeking debt advice, with the latest figures showing average arrears increased by 15% year on year in April, now standing at £2,669 per client.

“Urgent steps to eliminate historic debt built up over the energy crisis are needed, and we’ve welcomed Ofgem’s plans for a debt relief scheme. Such a move must be well-targeted and effectively designed, to properly address the substantial pressures consumers with energy debt are facing. It’s also essential that suppliers work closely with the regulator to drive up standards in energy debt collection and ensure fair treatment of customers in vulnerable situations.

“Ultimately, given the ongoing fluctuations in energy prices, long-term reforms are crucial to ensure affordability and provide lasting protection for households facing problem debt and fuel poverty.”

Independent Age Chief Executive Joanna Elson, CBE said “Today’s energy price cap announcement will provide some relief for older people living on low incomes. While it’s good news that energy prices will fall by 7%, from £1,849 to £1,720, this is only a very modest drop, and prices are still much higher than they were before the energy crisis of 2022. Across the country there will still be too many people in later life living in financial hardship who cannot afford to heat their homes.

“The UK Government must use the warmer months to prepare for next winter. Older people on low incomes should be supported so that they have enough money to turn the heating on. We welcome plans announced this week to widen the eligibility criteria for the Winter Fuel Payment, linking it to Pension Credit saw far too many people in financial hardship miss out. We heard dreadful accounts of people going to bed in hats and coats, limiting themselves to just one meal a day to save money, and having to visit public places to stay warm. We urge the UK Government to act quickly and provide clarity on who will be eligible for the next payment. Nobody should be left in the cold next winter.

“In the long-term, the UK Government must implement policies that lift older people out of fuel poverty and ensure financial security. The UK Government should extend the Warm Home Discount beyond 2026, increase payments above the present £150 level, and introduce an energy social tariff. These changes would make energy bills much more affordable and protect customers on low incomes from future unaffordable spikes in costs. Currently there are 1.9 million older people living in poverty, which only highlights the need for a cross-party consensus on the adequate income needed in later life to avoid financial hardship. This figure must be swiftly determined, and urgent access to it implemented. Nobody should have to choose between heating or eating.”