Source · Select Committees · Public Accounts Committee
Recommendation 23
23
Accepted
Ofgem energy price cap significantly increased due to rising wholesale energy costs.
Conclusion
Since 2019, the Office of Gas and Electricity Markets (Ofgem) has set a price cap on the price per unit of gas and electricity for customers on standard default tariffs, which apply to consumers who have not signed up for a fixed-term contract tariff with their energy supplier. Between winter 2021–22 and summer 2022, the price cap increased by 54% from £1,277 to £1,971 a year for an average household that pays for energy through direct debit. This was mainly because wholesale energy costs doubled, initially because global energy demand increased following the COVID-19 pandemic, and then due to the impact on energy markets of Russia’s invasion of Ukraine. On 26 August 2022, Ofgem announced the energy price cap would further increase by 80%, to £3,549 per year from 1 October 2022, reflecting a further increase in estimated wholesale costs for energy suppliers.5
Government Response Summary
The government agrees with the observation, stating the price cap is now £2,074 for Q3 2023 and is forecast to fall. It confirms the Energy Price Guarantee (EPG) will remain a safeguard over the coming winter and outlines existing cost-of-living payments, while deciding not to cap support for high energy users to maintain universal access.
Government Response
Accepted
HM Government
Accepted
5.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2023 5.2 The price cap of £2,074 for Q3 2023 was announced by Ofgem on 26 May 2023 and prices are forecast to continue to fall. Energy prices are affected by a range of factors and government is planning for a range of possible scenarios. This planning is being guided by extensive experience in delivering household support last year that is also taking onboard the lessons learned from doing so. The EPG will remain in place as a safeguard over this coming winter in the event prices spike again, and the EBDS will continue to provide support to non-domestic customers who have a contract with a licensed energy supplier until 31 March 2024. Some non-domestic customers who procure their energy from unlicensed energy providers will also be able to claim support under the Non-Standard EBDS until then. 5.3 In the meantime, the government has already committed to provide up to £900 in cost-of-living payments over 2023-24 paid across three instalments to the most vulnerable households on eligible means-tested benefits. This is in addition to £150 for pensioner households and £300 for individuals on eligible means-tested disability benefits. 5.4 In relation to capping support to those that use very large volumes of energy, high energy use is unavoidable for certain vulnerable households, for instance as a result of necessary medical equipment. As such, government have concluded that it should not progress with this option, and that support through the Energy Price Guarantee (EPG) should remain universal.