Starting Tuesday, 21 million households in England, Scotland, and Wales will see a decrease in their energy prices. However, there is uncertainty about whether this decrease will last through the winter months.
The average monthly bill for a household using a standard amount of gas and electricity will decrease by £11, according to Ofgem’s latest price cap. While this 7% decrease is welcomed by billpayers, there are concerns that bills will still be high during the colder and darker months of the year.
Consumers are being advised to shop around for fixed deals that can provide more certainty over their payments. However, it is difficult to predict the future direction of prices. While there was not expected to be much change in prices this autumn, the current uncertainty in the Middle East could have an impact on wholesale prices, which would in turn affect household bills. Analysts at Cornwall Insight have predicted a further 1% decrease in prices in October, bringing the annual bill for a typical household to £1,697. However, there is significant uncertainty surrounding this forecast.
The price cap is still significantly higher than pre-pandemic prices, even when accounting for inflation. Furthermore, there is little indication that prices will decrease substantially in the next few years. Ofgem is encouraging consumers to consider fixed deals, which could save them up to £200 annually.
Customers who are already on fixed deals will not see any changes to their monthly payments following the price cap change on Tuesday. Currently, 35% of billpayers are on fixed tariffs, a significant increase from just 15% a year ago when there were fewer offers available. However, it is important to note that a fixed deal only sets the unit rate, and the actual household bill depends on the amount of energy used.
During this time of year, when heating is usually off, families tend to focus on the cost of cooking, especially as food prices have been rising. Nadina Hill, a mother-of-two who works part-time at an emergency services control room, has been trying to manage her cooking and energy costs. She participated in an eight-week course with her daughter Gracie, 14, that taught them how to cook healthy meals more affordably. The Community Kitchen, run by the Stevenage Football Club Foundation, has helped hundreds of families by providing menus with portions that cost £1 or less. Hannah Marsh, head of health and wellbeing at the foundation, shared some key tips for saving money on cooking, such as using recipes like pizza in a pan to avoid using the oven, bulk cooking meals that can be frozen for later, and considering using cheaper tinned or frozen vegetables.
Gracie also mentioned that even their pet rabbit and guinea pigs benefited from the course. Instead of wasting peelings, they would give them as treats.
Every three months, Ofgem sets a maximum amount that suppliers can charge for each unit of energy, which applies to all customers on a variable tariff in England, Scotland, and Wales. This price cap does not apply in Northern Ireland, which has its own energy market. Customers on variable deals can estimate their energy bill’s decrease by subtracting 7% from their previous monthly direct debit amount.
Ofgem shows the impact of the price changes by illustrating the annual bill for a typical household using a standard amount of energy and paying by direct debit. This has decreased by £129, from £1,720 to £1,591. However, prices are still significantly higher than before the Covid pandemic, and many people have had to adjust their lifestyles and finances accordingly.
Jenny David, who lives in Bridgend with her husband, Mark, and two children, Anwen and Hywel, said that their family has found new ways to save money. She mentioned that it has become their “new norm,” and they don’t even realize they are making changes. Jenny is a nurse, and her husband works in his family’s kitchen and bathroom fitting business. They have invested in an air fryer and carefully plan their grocery shopping. Jenny also mentioned that she used to be active at the gym, but to save money, she now attends a free weekly outdoor fitness class.
Another strategy for managing energy costs is to provide regular meter readings to suppliers to ensure they are charging for the correct energy usage. The latest price changes for customers on direct debit are as follows:
Gas prices are capped at an average of 6.33p per kilowatt hour (kWh), down from 6.99p
Electricity prices are capped at 25.73p per kWh, down from 27.03p
Standing charges vary by region but have decreased on average to 51.37p a day for electricity, from 53.8p
Standing charges for gas have decreased to 29.82p a day, from 32.67p
In addition to these changes, a typical household uses 2,700 kWh of electricity per year and 11,500 kWh of gas per year. Households on pre-payment meters pay slightly less than those on direct debit, with an average annual bill of £1,672. Customers who pay their bills by cash or cheque pay more, with an average annual bill of £1,855.
Ofgem is considering changes to the system of standing charges, which has sparked debate over how they operate. The government’s decision last year to limit eligibility for the winter fuel payment raised concerns about energy costs for pensioners. However, after facing opposition from charities, backbench Labour MPs, and unions, the prime minister and chancellor reversed their decision. This means that 75% of pensioners in England and Wales will receive the payment in winter 2025, and the rules will be similar in Scotland. Additionally, starting this winter, the payment of £200 or £300 per pensioner household will go to those with an annual income of £35,000 or less. The Warm Home Discount, worth £150, will also be extended this winter. Customers on means-tested benefits will automatically see the discount applied to their bills, regardless of their property size.
Additional reporting by Abi Smitton.