The predictions for the Default Tariff Cap in this piece are out of date, please click here to find our latest forecasts and commentary on the cap.
Following the announcement by Ofgem that April’s Default Tariff Cap (price cap) will fall to an average £3,280 per year, nearly a £1,000 drop for a typical user compared to the Q1 2023 (Jan-Mar) rate, you would be forgiven for thinking bills will follow suit.
However, with consumers currently shielded from price cap rates by the government’s Energy Price Guarantee (EPG), it is not the falling cap, that households should be concerned with, but the rising rates of the government scheme. If the government goes ahead with its proposed plans to raise the EPG limit from an average £2,500 to £3,000 a year from April, far from falling typical consumers could see their bills skyrocket by £500.
The government will be saving £2.5bn1 by raising the EPG, but this will come at a cost to households.
While the EPG will provide a small saving from today’s announced price cap, the proposed increase in costs will still be difficult for many consumers who were relying on the scheme to safeguard their finances from unpredictable market trends. Instead, they will now be faced with the daunting prospect of having to pay significantly more for their utilities from April.
In addition, households will also be losing the £400 Energy Bills Support Scheme2 (EBSS) payment which has also helped shield them from the immediate impact of rising energy costs on their household budgets.
There is some cause for optimism, while the price cap fall may not offer immediate relief for consumers, if wholesale prices continue their downward trajectory, we currently predict that the price cap will fall below the EPG in July. This will provide much-needed relief to struggling households currently waiting to see falling wholesale prices trickle down to their bills.
Our latest Price Cap predictions for Q3 and Q4 2023:
Figure 1: Cornwall Insight’s Default tariff cap forecasts
|QUARTERLY||Q3 2023 CI Forecast||Q4 2023 CI Forecast|
Figure 2: Default Tariff Price cap forecasts, Per Unit Cost and Standing Charge including VAT (dual fuel, direct debit customer, national average figures)
|Electricity||Q323 Forecast||Q423 Forecast|
|Standing Charge (£/day)||0.38||0.38|
|Per Unit Costs (p/kWh)||32.28||32.38|
|Gas||Q323 Forecast||Q423 Forecast|
|Standing Charge (£/day)||0.29||0.30|
|Per Unit Costs (p/kWh)||7.77||7.75|
1. If the EPG were to increase to £3,000 as planned, the estimated cost would be £26.8bn while if it were to remain at £2,500, the estimated cost would be £29.3bn.
2. If the government were to keep the EBSS for another three months the estimated cost would be £5.8bn.