At last, there’s an inkling of good news on the cost-of-living crisis. Ofgem has announced the level of the new energy price cap, with the typical household paying £2,074 a year from July – down from the £2,500 level set by the Government’s Energy Price Guarantee. For the roughly 29 million households protected by the scheme, this means cheaper energy is on the horizon. Thanks to tumbling wholesale energy costs, energy suppliers are expected to bring back fixed deals in the coming weeks, opening up competition in the market.
Inflation, too, is starting to ease. Prices rose by 8.7 per cent in the year to April 2023, down from 10.1 per cent the previous month. The Office for National Statistics (ONS) put the decline down to energy prices remaining stable, compared to the leaps seen at the same time last year.
Falling bills and shallower price rises are, of course, a welcome step in the right direction and no one is suggesting that even a small decline in energy bills won’t make a difference to struggling families. But this is not the time to open the bubbly and start celebrating the demise of the cost-of-living crisis – if anyone can even still afford sparkling wine these days, that is.
One effect of the lower price cap will be the return of fixed price energy contracts. Before the crisis, these deals were the best way to pay the lowest price possible as suppliers jostled to win customers. But there are now fewer than a dozen energy suppliers in the UK, down from highs of close to 50. The remaining high levels of risk in the energy sector mean that few among those that survived are desperate to lower their prices to win new customers. So competition in the market, when it finally returns, is likely to be muted and slow.
When deals emerge, it won’t be easy for consumers to tell whether or not they are good value. Comparing how much a fixed deal might cost compared to sticking with a standard variable tariff will require a calculator – and a crystal ball. It also means remembering to cancel contracts and switch when the time comes. Most people simply don’t have the time to do this properly. One way of getting around this is to hand the job over to a third party that handles the hassle for you.
Even after lower energy bills kick in, prices will be far higher than they were before the energy crisis. In the summer of 2022, the energy price cap stood at £1,138. The new cap in July is almost twice as high. The charity National Energy Action estimates that the number of UK households experiencing fuel poverty stood at 7.5 million as of April 2023.
Much still to do
Resulting fuel poverty means households can end up with problematic levels of debt that will impact their day-to-day lives for years to come. Others ration their energy consumption to unsafe levels, switching off appliances that are essential for leading a healthy life. In the worst cases, there is a risk that those with prepayment metres self-disconnect, cutting off their energy supply entirely as they are unable to top up. For these families, a 20 per cent decrease simply isn’t enough to make energy affordable again.
The spark of good news on energy bills should not distract energy secretary Grant Shapps and regulator Ofgem from the crucial task of ensuring that falling prices are passed on to consumers. Now is the moment to put every effort into ensuring energy companies act fairly, adopting fair pricing strategies and improving transparency on people’s bills. Until that happens in earnest, it will not be possible to put the pain of the energy crisis behind us.
Greg Marsh is the CEO of the energy company Nous.co.