Today we have announced a new price cap level for energy bills, which is significantly lower due to falls in the wholesale price of energy. However, the cap remains above the level of the government’s Energy Price Guarantee, which is due to rise from the current £2,500 to £3,000 per year from April 1st.
This means that, without further changes in government policy, energy bills for a typical household will rise by 20%.
I talk to customers regularly, and I know that any news bills are going to rise even further will be extremely concerning. Many families are already struggling at today’s high prices – a further rise will only exacerbate this. In the first instance, our advice for customers who think they will be in difficulties is to contact their supplier for help.
Ofgem has robust rules in place to protect people in vulnerable situations; suppliers are obliged to offer payment plans and direct customers to available support. For example, we are aware that there are customers with traditional prepayment meters who have not redeemed their Energy Bills Support Scheme vouchers. These customers in particular should contact their supplier immediately.
In the medium term, from July there may be better news for customers. It is always extremely difficult to predict the future of gas prices, and we are extremely cautious about doing so. However, if market conditions stay as they are, the price cap level could fall significantly in July. This is in part facilitated by the fact that we now update the price cap every quarter.
If wholesale prices do remain lower, we may well see new fixed price energy deals return to the market. There are many reasons why people may choose these – including the stability and certainty they can bring for household budgets. I would encourage all customers to examine any offer carefully, and ensure they consider the potential for the price cap to fall later in the year.
Today’s announcement also reinforces the fact that the affordability of energy will continue to be a real issue well into the future.
In these difficult times, Ofgem has been crystal clear with suppliers that their first responsibility is to protect their most vulnerable customers. In November, we launched a detailed review of suppliers’ behaviour, which revealed significant weaknesses in the way they treated customers in vulnerable circumstances, and those in payment difficulty. We continue to take enforcement and compliance action to compel suppliers to up their game, recently including demanding compensation and removal of forcibly installed prepayment meters where our rules have not been followed.
Ultimately however, often the root cause of people falling into debt is that even with the extensive government support available, millions of households are struggling to pay their bills. While the price cap has been effective in preventing customers from being charged more than they should, it does not provide a means to ensure vulnerable customers and those on low incomes can afford the energy they need when prices are so high.
That is why we think there is a case for examining, with urgency, the feasibility of a social tariff, or other similarly targeted support, to customers in the most vulnerable situations.
Within our remit Ofgem will continue to hold suppliers to account to ensure they treat consumers fairly, and have robust processes in place to provide support to those who need it most. But we cannot compel suppliers to sell energy to consumers at a loss. Decisions requiring changes to spending, tax, or the law, are rightly a matter for elected Ministers.
There are a wide range of regulatory and policy proposals that could deliver greater protections for customers in vulnerable circumstances, and Ofgem will be working closely with government, industry, and consumer groups on the options available.