The Spring Budget 2023 has already brought some good news for consumers, as Jeremy Hunt will announce an extension to the current rate of energy bills support scheme the energy price guarantee.
The Chancellor of the Exchequer has made the announcement after weeks of campaigning from cost of living experts, including Money Saving Expert Martin Lewis, 131 charities and the Resolution Foundation think tank. There were fears that a planned 20% hike to energy bills would not only increase fuel poverty levels, but would also damage the UK’s health.
It comes as wholesale energy prices appear to be falling after rocketing in the wake of Russia’s invasion of Ukraine. It means the Ofgem energy price cap, which - until the energy price guarantee was brought in by Liz Truss - was the upper limit for household bills, should return as the top end of energy prices this summer.
The news will come as a welcome relief to consumers, given the UK’s cold snap looks likely to extend into next month. Heating bills are likely to have shot up in recent weeks as a result of a cold snap that has brought snow and ice to the country.
So, what do the government’s plans for the energy price guarantee mean for your energy bills - and what is happening to other government energy support schemes from April?
What is the energy price guarantee?
In one of her first acts as Prime Minister, Liz Truss announced the energy price guarantee. It came after it was revealed the Ofgem energy price cap would be rising 80% to £3,549 from October 2022.
Put very simply, the scheme involves the government paying energy suppliers the difference between a price cap and whatever the wholesale cost of energy is. Your bill may be higher or lower than the £2,500 cap depending on your usage. The move has cost the Treasury billions of pounds - although it is likely to have been cheaper than first feared thanks to the milder conditions we’ve seen this winter.
Under Truss’s original plans, the scheme would have kept bills at £2,500 for a typical household until October 2024. But after she was ousted as Prime Minister, her successor Rishi Sunak and his Chancellor Jeremy Hunt opted to make the support less generous from April 2023 and to curtail it by six months in a bid to reduce the cost of the scheme.
When does the energy price guarantee end?
Technically, the energy price guarantee is legislated to remain in place until April 2024. But the current rate was set to become less generous from 1 April 2023. For the 12 months following on from this date, the cap was due to be £500 a year (20%) more expensive at an average of £3,000 for a typical household.
But the government has now said it will keep the £2,500 limit in place for an additional three months. It means the rate at which our energy bills are set will remain the same for another three months - although bills are likely to still go up given the energy support grants are ending.
The Ofgem energy price cap, which is still being calculated and shows what a typical household could expect to pay outside of the energy price guarantee, is currently much higher than the current government support. The average household would currently be paying bills of £4,279.
But the cap will tumble by the equivalent of £1,000 a year to £3,280 from 1 April and is expected to fall by another £1,000 from July 2023 as a result of falling wholesale energy prices. It means consumers may not be paying up to the energy price guarantee rate for their energy this summer and, therefore, the government will not be spending anything on its household energy bills safety net.
According to analysis based on current projections by progressive think tank the Resolution Foundation, the cost to the taxpayer of universal energy support will fall 90% over the next year to £1.4 billion - well below the £12.8 billion forecast at the Autumn Statement. It suggests Jeremy Hunt may have more fiscal wiggle room during his Spring Budget than he was expecting.
Martin Lewis said the situation means the government should have “significant headroom” to keep bills down. For this reason, he has urged the Chancellor to not all the hike to the energy price guarantee to go ahead as planned, or risk damaging household budgets and people’s mental health.
After Martin Lewis’s intervention, Jeremy Hunt said the government was “always” looking at how it could help. But he insisted it had “to be responsible with public finances”.
“At the same time as energy prices have come down, so too have our receipts from the windfall taxes,” he added. “So we have to look at everything in the context of what is responsible for public finances, because if we don’t, we’ll just see interest rates go up and then everyone who has a mortgage up and down the country will face a different kind of cost.”
The Chancellor indicated there was no headroom for a “major new initiative” to provide any further energy bills help to households. But in an apparent u-turn, he has since announced that the energy price guarantee will remain at its current rate for another three months.
What about the other energy support schemes?
As well as the energy price guarantee, our energy bills have been reduced by several other government schemes.
The energy bills support scheme, which was introduced by Rishi Sunak when he was Boris Johnson’s Chancellor, has been taking money off our bills since autumn 2022. The £400 grant took £66 of our energy bills in October and November, and £67 in December and January. Another two £67 reductions are due on our energy bills in February and March. But the scheme will no longer be in place from April.
The energy bills relief scheme - the business equivalent of the energy price guarantee - has been shielding businesses from rocketing bills since October 2022. It will be changed from a price cap to a discount on wholesale prices from 1 April until April 2024.
Alongside these schemes, the government has given out several one-off payments to houses receiving state benefits over the last six months, including the £600 winter fuel payment for pensioners. In his Autumn Statement 2022, Jeremy Hunt said more one-off support would be on its way, including a £900 cost of living payment for those on means-tested benefits, £300 for pensioners and £150 for those receiving disability benefits.
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