Government announces energy price cap for households – industry reaction

New Prime Minister Liz Truss has announced plans that will limit energy bill rises for all households for two years.

The measures will mean that a typical household energy bill will be capped at £2,500 annually until 2024, saving households £1,000 a year on the energy price cap announced for October.

Commenting on the announcement an Ofgem spokesperson said “Ofgem welcomes this significant and unprecedented support for energy consumers across the country. It’s been clear to Ofgem and the government since we announced the new price cap that the new government would have to act urgently and decisively to support consumers and this package of support will be welcomed by millions across Britain.”

“Given the scale of the crisis and the challenges that lie ahead, it is the right time to assess the approach that has been taken. Therefore, we welcome the reviews on regulatory structures and how we get to net zero by 2050. We look forward to working with government on both.”

Joanna Elson CBE, Chief Executive of the Money Advice Trust said “Today’s welcome new capping of energy bills will provide much-needed relief for the millions of people worried about how to afford future increases.”

“For millions of households, however, serious damage has already been done.  The combination of high energy prices and rising food and fuel costs has left many facing impossible choices.  Our debt advisers are hearing from people skipping meals and not turning on their electricity to try and get by.”

“Although bills won’t now rise to as extreme levels, they remain high and are still difficult to afford for many, particularly people on low incomes.  The next steps should include uprating benefits so that they keep pace with inflation and for Ofgem and energy suppliers to increase protections for people who do fall behind this winter.”

“The new six month support scheme for small businesses is welcome – but with many facing unaffordable costs already, these challenges will remain for some time.”

Richard Lane, StepChange Director of External Affairs, said “The relative relief that households will feel at the news that their immediate energy prices will be capped at current levels can’t mask the fact that many people are already struggling at current prices. For people managing debt, this will impact their ability to address their wider financial problems. We urge the Government to ensure that for targeted households with the least financial resilience – at least those in receipt of means-tested benefits – there should be no future clawback of the support offered now. Benefits should also be uprated this Autumn to help address the wider cost of living pressures that are disproportionately affecting those on low incomes.”

Dame Clare Moriarty, Chief Executive of Citizens Advice, said “Today’s announcement hits the brakes before October’s terrifying price hikes become reality, and will come as a huge relief to millions of households.”

“But energy bills are still sky high. A freeze may not be enough to reverse the devastating trend in people coming to us because they’ve run out of food or can’t top up their gas and electric. The government needs to stand ready to provide more support for people on the very sharp end of this crisis.”

“Crucially, we also need the details on how this will be paid for. We don’t want to see costs added to customer bills down the line.”

“And Ofgem must make energy companies play their part. No one should be chased for a debt they can’t pay or force people onto a prepayment meter this winter.”

Chief Economist at the Joseph Rowntree Foundation, Rebecca McDonald, said: “The Government at last grasps the severity of this emergency. These moves will head off the unbelievable price predictions made during the summer that filled so many low-income families with dread. Struggling households now have some meaningful reassurance but they remain in the dark about their security beyond April.”

“People are already unable pay a range of bills so, even after today’s announcement, the failure to offer further targeted support will feel like a knockout blow to the millions of people agonising about their finances.”

“The promise of a growing economy on the horizon will be cold comfort when people have seen their benefits payments fall behind inflation and other bills continue to rise.”

“This is why the Government must do more in its fiscal statement to stop the poorest going without the essentials even after big energy price rises are frozen. Those suffering hardship now deserve to know what additional support they will get as cost-of-living pressures continue.”

Whilst Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown said “The energy package has been unwrapped. There was huge disappointment that there wouldn’t be more help for those on the lowest incomes and the most vulnerable, but the energy price freeze will ease some of the pain we were expecting in October and beyond. This is going to be the only welcome freeze we face this winter.”

“The horrendous scale of the energy crisis required the same dramatic level of intervention as the Covid crisis and the financial crisis. Today’s energy freeze is certainly a bold step, which is expected to cost over £100 billion. It looks as though that will be paid for through general taxation. And while it comes as a relief that it won’t mean higher bills for longer, it raises the question of whether the government will need to start clawing back the cash while energy prices are still higher than they were this time last year.”

“The energy price cap freeze will come as a huge relief for millions of people. The level of the cap means that once the £400 payments are factored in, prices should be roughly similar to the current cap. “For those who are getting by right now, it takes a massive weight off their shoulders. While the winter isn’t going to be comfortable, it will save an awful lot of agony.

“However, at this level, there will still be millions of people facing a personal crisis. Citizens Advice say that two people a minute are turning to the charity for crisis support, through foodbank vouchers or charitable donations – and that’s in the summer, when people on pre-payment meters are paying for far less energy. As energy needs spike, vulnerable people face horrendous challenges.”

“Meanwhile, one in five people are borrowing more than they did this time last year, and anyone who has coped with rising prices by going into debt will eventually hit the wall – where their repayments are unaffordable or they exhaust their credit limit. For these people, a freeze at this level isn’t enough to protect them from a looming crisis. It’s also a real blow not to have had any news on equalising the cap for those on pre-payment meters. It’s ludicrous that those who can least afford it are charged the most – paying a penalty for being worse off.”