The reduction in the April price cap stems from measures in the autumn Budget, with Chancellor Rachel Reeves revealing that £150 would be cut from energy bills by removing the Energy Company Obligation and Renewables Obligation. Some of this saving has been offset by other costs added to bills, including network maintenance and higher wholesale costs. The April price cap rate will run for three months, until July. Current predictions indicate bills will go up again in July due to the Iran war, with energy consultancy Cornwall Insight forecasting the July price cap at £1,973 a year for a typical household, an increase of £332 or 20% on April’s cap. This forecast increase is attributed to a significant rise in gas prices caused by increased geopolitical tensions in the Middle East. The forecast from Cornwall Insight is likely to change as we get nearer to the July price cap being confirmed.
The Ofgem price cap does not put a limit on how much you can pay for energy; instead, it sets the maximum unit rates and standing charges. The standing charge is a fixed fee you pay to be connected to the grid, and your bill is based on the amount of energy you use, which can be higher or lower than the headline price cap figure. The price cap figure represents what the typical billpayer can expect to pay, based on Ofgem's estimate of average household energy use.
The Ofgem price cap covers anyone on a standard variable rate (SVR) tariff, and you are likely on an SVR tariff if you are not fixed into an energy deal. There are about 33 million standard variable tariffs customer accounts, including six million with prepayment meters. The savings for the April price cap will also apply to fixed rate tariffs due to the change in policy costs. If you are a fixed rate customer, you do not need to do anything; your energy supplier will be in touch to outline the changes to your tariff.