New Chancellor Jeremy Hunt has announced the two-year energy price freeze for all households will now run for just six months.
The universal energy price guarantee will come to an end in April after which support will be more targeted, with a review being launched on how to help the worst affected households after this period. Hunt said its changed approach after April will “cost the taxpayer significantly less than planned” and will target those most in need.
The government also confirmed that the energy bill relief scheme for businesses, which will cap corporate energy bills, is also set to end in April.
Liz Truss’s government launched the energy support scheme for households at the start of last month to limit the unit cost of energy so that a typical household will pay a maximum of £2,500 per year. However, the government’s plan only caps the cost per unit that households pay, meaning actual bills will still be determined by how much energy is consumed.
Energy regulator Ofgem previously had raised the cap to £3,549 from October, prompting the government to intervene in the form of the energy price guarantee. The price cap raise resulted in a typical default tariff customer paying an extra £1,578, before the price guarantee measure took effect.
Energy bills could rise to more than £4,000 a year
Energy market analysts Cornwall Insight warned that a typical household could be facing bills of £4,348 a year when the universal price guarantee comes to an end in April if the government does not offer further support.
Cornwall Insight said it expects annual bills to equate to £4,347.69 from April to June, with gas at £2,286.70 and electricity at £2,060.99.
Between July and September the consultancy predicts the price cap easing slightly to £3,697, followed by a slight increase to £3,722 from next October until the end of 2023. This is significantly higher than the £1,277 annual bills stood at a year ago.
The consultancy firm said targeted schemes to help those most in need of support, along with energy efficiency measures, need to be taken, stating: “Now constructive attention needs to turn to what a replacement scheme looks like from April to ensure that those who need support receive it, and that whatever options are taken forward can form the foundation stones of an enduring, fair and sustainable market after the current crisis subsides.”
Campaign groups and industry organisations have warned that the end of the support could “heap huge financial pressure” on households come April.
Mike Foster, chief executive of the Energy and Utilities Alliance, said: “News that the energy price cap protection coming to an end in April will surprise and worry millions of hard-pressed families.
“Together with the announcement that promised tax cuts have also been withdrawn will heap huge financial pressure onto those already struggling to pay their bills.”
Meanwhile, National Energy Action said ending the energy guarantee after six months is an “almighty trade-off” and has created “huge uncertainty” for households.
Questions need answering “quickly” on who will continue to get support, including whether this will include people who do not receive benefits and whether support will be greater for those in the most need, chief executive Adam Scorer said.
He added: “Households on the lowest incomes are already rationing their energy usage to dangerous levels. £2,500 is beyond their means.
“Many vulnerable people were holding on by their fingertips. Government has to be very, very careful it doesn’t prise them away.”