The Chancellor has announced a three-month extension to the energy price guarantee in his 2023 Budget.
The increase would have doubled the number of people unable to afford their energy bills from one in 10 to one in five. However, households will still see their bills increase, as the £400 grant that has been paid in monthly instalments since October has now come to an end.
Mr Hunt said: “High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.
“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.”
The energy price guarantee initiative was brought in last autumn as a temporary replacement for the energy price cap in order to protect consumers from sharp price increases, after Ofgem announced a planned 80 per cent hike to the cap.
Here’s what you need to know about the price guarantee and the price cap, and how the Budget announcement will affect your bills.
What is the energy price cap?
The energy price cap limits the amount a supplier can charge for their default tariff. It was launched in January 2019 by energy regulator Ofgem with the intention of keeping down the cost for households across the UK.
It includes the standing charge (a fixed daily amount you have to pay for energy, regardless of how much energy you use) and the maximum price for each unit of electricity and gas. The price is set per kilowatt hour (kWh).
To show what this might look like for an average person, Ofgem uses a figure of 12,000kWh for a household’s annual gas use when announcing the price cap. However, this is just a guide to see what the change in price cap does to a typical household’s annual energy bill.
In February, Ofgem announced a new price cap, of £3,280, would come into effect in April. That figure was £999 less than the current sum of £4,279 per year for an average dual-fuel household paying by direct debit.
However, households were not paying this amount, as they have been protected by the energy price guarantee.
What is the energy price guarantee?
The Government introduced the energy price guarantee as a temporary replacement for the price cap, in order to support households from being pushed into poverty amid soaring wholesale gas prices.
Under the guarantee, suppliers have been further restricted in what they can charge households per unit of energy, with the Government making up the difference.
The average household will pay £2,500 per year on their energy bills under the guarantee, though the actual amount people will pay varies depending on their usage.
The guarantee was due to rise £500 to £3,000 in April, but this will no longer happen. It will remain at £2,500 until June. After this, households and energy firms will again be beholden to the price cap.
While many billpayers will breathe a sigh of relief, critics say Mr Hunt’s plan falls far short of what is needed to prevent millions of households slipping into, or remaining trapped in, fuel poverty.
Stewart Hosie, the SNP’s economy spokesman, branded Mr Hunt’s failure to reduce bills “truly pathetic” while Liberal Democrat treasury spokeswoman Sarah Olney described the measure as a “sticking plaster”.
Mr Hosie said: “It’s truly pathetic that the Chancellor has failed to cut energy bills, despite having ample resources to do so. The Tories are ripping families off by keeping bills at such exorbitantly sky-high levels, with many families forced to pay three times what they paid a year ago.
“With energy companies making record profits, and the wholesale price of gas falling, there is no excuse for this shameful Tory decision, which will hammer household incomes and push even more families into poverty, hardship and debt.”
Ms Olney said: “This does not go far enough. Instead of a sticking plaster for another three months, we need meaningful action now.
“The Liberal Democrats are calling on the Chancellor to cut energy bills by £500 per household… In three months’ time families will once again be facing a cliff edge of unaffordable heating bills.”