Ofgem has announced that its energy price cap will drop to £1,923 from 1st October 2023, a decrease of 7 per cent compared to April’s level but £646 higher than two years ago.
The drop reflects further falls in wholesale energy prices, as the market stabilises and suppliers return to a healthier financial position after four years of loss making.
Ofgem says that it expects all suppliers to continue improving customer service, to support their most vulnerable customers and to shore up their financial resilience to prevent the kind of failures we saw two years ago. Ofgem recognises that there is some excellent best practice across the sector but expects this to be the norm with poor practice stamped out.
Alongside changes to the price cap, Ofgem has also introduced measures to reduce costs for prepayment meter customers and ensure extra support for those facing disconnection from the network.
The price cap savings – which can be passed on more quickly to customers thanks to the price cap updating quarterly – continues the downward trend since prices peaked at £4,279. However, it remains well above the average before the energy crisis took hold in 2021 and the market remains volatile.
Jonathan Brearley, Ofgem CEO, said “It is welcome news that the price cap continues to fall, however, we know people are struggling with the wider cost of living challenges and I can’t offer any certainty that things will ease this winter.”
“That’s why we’ve introduced new measures to support consumers including reducing costs for those on pre-payment meters, and introducing a PPM code of conduct that all suppliers need to meet before they restart installation of any mandatory PPMs.”
“There are signs that the financial outlook for suppliers is stabilising and reasonable profits are returning. With the small additional allowance we’ve made to Earnings Before Interest and Tax (EBIT), this means there should be no excuses for suppliers not to be doing all they can to support their customers this winter, and to reinforce this we’ll be introducing a consumer code of conduct which we will look to have in place by winter. This code will ensure there are clear expectations of supplier behaviours especially for their most vulnerable consumers with whom suppliers should be reaching out proactively, with compassion and understanding. There are great examples of suppliers already doing this but I want to see this become the norm in such an essential sector that has such a big impact on people’s lives.”
The National Debtline says that more than four in ten (41 percent) of callers have a deficit budget where they already do not have enough coming in to cover essential costs. The Charity is calling for more to be done for households most severely impacted by high energy costs, including through payment matching or write-off options.
David Cheadle, Chief Operating Officer at the Money Advice Trust, the charity that runs National Debtline, said “Today’s price cap announcement may be a welcome sign that energy prices are coming down, but it offers little solace for households who have already seen their energy costs spiral.”
“This is an extremely worrying time for people who have fallen behind on their energy bills, whilst grappling with high costs across the board. Looking ahead to winter, many households will face impossible choices without further support.”
“Ofgem can do more to support people worried about their energy repayments. This should include urging suppliers to provide a Help to Repay scheme, with payment matching or write-off options for households most severely impacted by this period of high energy costs.”
Richard Lane, Director of External Affairs at StepChange Debt Charity, said “The slight drop in the energy price cap announced today by Ofgem is welcome, but will do little to alleviate the immense pressure on millions of households, who are fighting just to keep their heads above water. The average energy bill will still be nearly double what it was 18 months ago, and many households have built up substantial arrears as a result – among new StepChange clients, over half (55%) are behind on their dual fuel bills. When put into the context of the multitude of recent price rises, the chance of being in a position to pay off energy debt for many low income households has become slim.”
“This is why it’s vital the government considers the continuing impact that inflation and sky-high energy bills is having on low income households’ finances, and is ready to step in with further targeted support. For those already struggling with significant energy arrears, Ofgem must ensure energy firms don’t make things worse by seeking unaffordable debt repayments. Going forward there needs to be a more sustainable solution to shield the most financially vulnerable people from sudden hikes in bills, which is why we’ve joined several other charities in calling for a social tariff on energy.”
Richard Neudegg, Director of regulation at Uswitch.com said “Falling energy prices are a relief as we enter the colder months, but the drop could be short lived as Ofgem will review the cap again before the depths of winter. Rates for the average home will be 7% lower from October to December, but energy prices remain volatile and are predicted to rise again in January.”
“Despite lower unit rates, energy use will be higher, so the average household may only save around £47 next quarter compared to current rates. When we also consider that there is no universal Government bill support this winter, the average household will actually be paying more than they were over the same period last year. We’ve landed in an environment in which we are expected to simply accept expensive energy costs.”
“There are questions that Ofgem and the Government need to answer on whether the current regulatory rules are the best way forward to bring back cheaper energy for households. Ofgem’s ban on acquisition-only tariffs was originally implemented to freeze discounting during the peak of the energy crisis, but now means that suppliers have no incentive to offer the best pricing possible.”
“The price cap itself also deters suppliers from innovating and delivering better deals. It needs reforming in a way that offers protection for households while putting real pressure on suppliers to do better. Half of the population isn’t even sure what the price cap is or does.”
“Instead of regulating the exact price of energy every three months and banning cheaper deals, we should set the principle we want to achieve in regulation – that a standard tariff is priced fairly, based on costs.”
“This could require all suppliers to offer a transparent standard tariff that provides value for money to households, but also gives them the ability and incentive to do things better. Targeted support should also be available to the most vulnerable. For consumers who would like more price certainty over the winter months, there is still an opportunity to lock in a reasonably priced fixed deal before rates potentially rise again.”
Rocio Concha, Which? Director of Policy and Advocacy, said “Even with this drop in prices from October, energy bills are significantly higher than they were before the energy crisis began – meaning some households will still struggle to afford their bill.”
“If you are concerned about struggling to pay higher bills, there is help available. Speak to your energy provider about a payment plan you can afford and check to see if you qualify for any government schemes.”
“Given the volatility in the energy market over the past two years, many – including Ofgem – are now raising questions about how best to create a well-functioning, competitive market, including reforming the cap. As part of these discussions, it will be crucial to consider how to protect customers who are struggling to afford their energy bills. The government urgently needs to introduce a properly targeted social tariff as soon as possible to help those struggling to make ends meet.”