There’s a 7% drop on the current energy rates, meaning the average home will pay £160 each month.
by Zoe Stabler, Senior Writer
The energy price cap has fallen again, for the third consecutive quarter. It remains significantly below the Energy Price Guarantee, so we’ll see our energy bills fall again. This time it’ll be approximately £13 less per month for the average household. The price cap was predicted to drop by 12%, however, it’s only fallen by 7%.
But these prices are still sky-high compared to historic bills, especially since extra support on bills ended in April. With the cost of living still rising, albeit at a slower rate, you’re not going to see a huge difference in your available cash. Here’s what you need to know about the cap and how much you’ll pay.
How the energy cap works
The energy price cap is a limit set every three months by Ofgem, the government’s energy regulator. It restricts how much an energy company can charge customers.
The cap applies to the price of your gas and electricity on your energy company’s default or standard variable rates. These basically can go up and down whenever the energy company likes. With the cap, the energy companies have to make sure their tariffs aren’t higher than the set rate.
Despite how it looks, it’s not a cap on the most you can pay for your bills. Instead, the prices set on the cap are the maximum price per unit of energy you use. Ofgem announces the figure as an annual price, as you probably don’t have a clue how many kwh of energy your family uses.
The quoted “cap” (£1,923) is an annual price based on a typical household. If you use more energy, you’ll pay more than the cap every year. Use less and you’ll pay less.
There are separate caps for gas and electricity, and each cap is also made up of a standing charge (a set amount each day, regardless of whether you use any energy) and a usage charge.
The cap will also vary depending on where you live in the UK, how you pay (e.g. direct debit) and the type of meter (credit or prepayment). Prepayment caps have always been a little higher, though that changed earlier this year. The new energy price cap also applies for those with a prepayment meter.
Crucially, if you’re on a fixed-rate deal the cap doesn’t apply and the price you pay won’t change until that fix ends.
What is the new energy price cap?
The latest announcement (on 25 August) is for a decrease to the price cap from 1 October until 31 December 2023.
The new cap for a “household with average use” is £1,923 a year. This is down by £151 or 7% from the current rate. But it’s only £13 less than our current bills, and £34 down from our bills between October 2022 to April 2023 where prices were subsided by £67 each month.
What is the monthly price cap?
Despite Ofgem attempting to present the information in a way we understand, the total annual cap figure isn’t always the easiest to comprehend, so I think it’s easier to understand the price cap when you view it as a monthly direct debit. Your energy company calculates this by taking the predicted cost for a year based on your previous energy usage and dividing it by 12. It’s not 100% accurate, but it’s a handy comparison.
For the latest cap, the average monthly bill will be £160.25, which is £13 less every month than the current cap.
Comparing this to prices a year ago, it’s still a whopping 50% more. If you were on a fixed deal, it’s likely you were paying even less.
What is the current energy price cap?
The latest announcement in May decreased the cap from 1 July until 30 September 2023.
The cap for a “household with average use” is currently £2,074 a year, down by £253 from the previous cap and 17% on the EPG.
When will the new cap come into play?
This new energy price cap will come into play on 1 October and will remain in place until 31 December. In November, there will be another announcement which will detail what the price cap will be from 1 January to 31 March.
How much will you pay under the new energy price cap?
Remember, the price cap figures are based on average use. If you use more than this average you’ll pay more, if you use less you’ll pay less. Plus, it can vary regionally so you’ll need to check where you live to see exactly what it’ll be for you.
If you want to get a rough quick idea, you can subtract 7% from what you pay at the moment (multiply your current monthly bill by 0.93). This doesn’t take into account if you’ve got an accurate direct debit set-up but could give you a sense.If you want something a little more accurate, Money Saving Expert has a handy calculator to estimate what you’ll be charged. You’ll need figures showing your historical energy use, which can be found on your latest bill.
Will you pay more or less money with the new energy price cap?
If you’re on a variable tariff
Broadly, anyone on a standard tariff will be charged less per unit of energy from 1 October2023. Of course, the bill itself will be based on your actual energy use.
If you’re on a prepayment meter
The really good news is that there is no longer a significant premium for those with prepayment meters. The last cap was roughly the same at £2,077 a year for the average household, just £3 higher per year The new cap is £1,923, the same as for everyone else.
If you’re already on a fixed tariff
If you’re fixed onto a tariff, your prices usually don’t change when the price cap changes. That’s because you’ve already agreed on a price per unit of energy for a fixed length of time with your energy supplier, usually 12 months. However, some fixes were reduced if they were above the EPG, so this could happen again if there are any drastic changes.
If you move onto a new fix
We’ve seen some fixed deals returning to the market recently. It might be worth checking them out to see if you’ll save, especially since the energy price cap is expected to rise slightly in January. Just be careful in the months between now and the new cap beginning in October.
That’s because any comparison site is required to compare prices to what you’re paying now. So you could be told you’ll save money, but in reality, there’s a risk you’ll fix higher than the price cap rate.
How has the price cap changed?
As you can see, the really big changes have happened since October 2021. Before this the average direct debit was under £100, so even with this new cut, we’re still paying around 50% more than a year ago, and even more on top if you had been saving with a lower fixed rate deal.
|Date||Max annual bill for a typical household||Average monthly direct debit||Change +/-|
|October to December 2023||£1,923 price cap / (£3,000 EPG)||£160.25||-7%|
|July to September 2023||£2,074 price cap / (£3,000 EPG)||£173||– 17%|
|April to June 2023||£2,500 EPG / (£3,280 price cap)||£208 (£273.33 without EPG)||+ 19% (-23.3%)|
|January to March 2023||£2,100 (£2,500 EPG – £400 grant) / (£4,279 price cap)||£175 (£356.58 without EPG and grant)||+ 0% (20.5%)|
|October to December 2022||£2,100 (£2,500 EPG – £400 grant) / (£3,549 price cap)||£175 (£295.75 without EPG)||+ 8%(+80%)|
|April to September 2022||£1,971 price cap||£162.25||+54%|
|October 2021 to March 2022||£1,277 price cap||£106.42||+12%|
|April to September 2021||£1,138 price cap||£94.83||+9%|
|October 2020 to March 2021||£1,042 price cap||£86.83||-7.5%|
|April to September 2020||£1,126 price cap||£93.83||-4.5%|
|October 2019 to March 2020||£1,179 price cap||£98.25||-6%|
|April to September 2019||£1,254 price cap||£104.50||+10.2%|
|January to March 2019||£1,137 price cap||£94.75|
The energy price cap vs the energy price guarantee
In October 2022 a couple of government subsidies came along which meant no one was actually paying the cap. First, was a £400 discount added to all gas and electricity accounts, saving everyone £67 a month for six months, with the last payment hitting accounts in March.
Combined with this was another price limit called the Energy Price Guarantee (EPG). The idea is that the government pays the difference between the two rates if the EPG is lower than the price cap.
Until July 2023 the EPG was £2,500 a year (on average). It was then raised to £3,000.
At the same time, the price cap fell to around £2,000, meaning prices were governed by that lower cap rather than the EPG.
When is the next price cap change?
The price cap is reviewed every three months (though prior to October 2022 it was every six months).
The price cap will next change on 1 October 2023. We already know that this is £1,923. After this, it’ll change again on 1 January 2024, a change that will be announced in November 2023.
Price cap announcements & changes
- Late November 2023 for 1 January 2024 change
- Late February 2024 announcement for 1 April 2024 change
- Late May 2024 announcement for 1 July 2024 change
Will bills fall further?
The current predictions are that the price cap will rise slightly in January by less than 1%, so there won’t be any massive reductions to our bills in the next few months.
How you can reduce your bill
Paying by direct debit will reduce your bills, so it’s well worth doing this.
Otherwise, it’s hard to do much to reduce what you spend on energy other than by using less energy. The standing charges will still apply, and bills will still be sky-high, but cutting back on gas and electricity will mean you pay less.
It’s worth giving accurate meter readings if you’re not on a smart meter. This will mean you’re more likely to have an accurate direct debit on current use, rather than what you used last year, and stops you from falling into debt on your energy account. Your energy firm will probably not change this automatically, so you might need to ask.
Don’t forget a direct debit does average the spend out over the year so you should hope to overpay in the summer and underpay in the winter to help even out your bills.
Is any other help available?
There’s been no new energy bill subsidy announced, and it’s unlikely it’ll happen.
Additional cost of living support was announced in November 2022 for those on certain benefits, with payments until Spring 2024.
You can also talk to your energy supplier to see if they have support or grants available for customers. British Gas has a grant for non-customers too. We’ve written about your options and the consequences if you can’t or choose not to pay.