The government is set to increase the Energy Price Guarantee (EPG) later this spring, but it is facing criticism for the hike in gas and electricity bills during this difficult financial climate.
From April 2023, the EPG will raise energy bills from £2,500 to £3,000 per annum for a typical household.
However, many believe this decision should be overturned, including MoneySavingExpert Martin Lewis, who has written to chancellor of the exchequer Jeremy Hunt to scrap the price increase.
He stated that wholesale energy prices have dropped recently, so “there is no need to do this”.
Lewis explained wholesale costs are likely to reach the level of the cap by July or even fall below it. Therefore, by increasing the EPG in April, this could “throw another 1.7 million people into fuel poverty”, which he said, “seems unnecessary”.
Citizens Advice, National Energy Action and StepChange all support Lewis’ plea, while Deutsche Bank predicts the chancellor will change his mind before the Budget announcement in March.
The Labour Party also thinks the EPG should remain at £2,500 beyond April, with shadow chancellor Rachel Reeves telling the BBC: “Most people just haven’t got the money to pay that.”
Ms Reeves suggested raising the windfall tax of 35 per cent on the profits of oil and gas companies to 78 per cent could generate £4.7 billion. What’s more, if the levy is backdated to the start of 2022, this would create a further £8.7 billion. This extra money could then be used to fund the three-month extension of the price freeze.
However, the Treasury seems to be remaining resolute with its plans to raise the EPG to £3,000 per year, recognising prices are “volatile and can increase as fast as they fall”.
It added that if wholesale prices continue to decline, households will see their bills fall below the level set by the EPG.
Cornwall Insight has predicted that Ofgem’s price cap will tumble to £2,361.96 per year from July, which is below the current EPG.
This is significantly lower than Ofgem’s existing price cap, which stands at £4,279 between January 1st and March 31st 2023.
The cap previously put a limit on how much consumers were made to spend on their energy provider’s basic tariff prior to former Prime Minister Liz Truss introducing the EPG in September 2022.
She initially put the EPG in place for two years to give billpayers some relief as wholesale prices soared. However, this was overturned when Rishi Sunak replaced Truss as Prime Minister and appointed Hunt as chancellor.
Both the EPG and Ofgem’s price caps are based on typical gas and electricity usage for a two- or three-bedroom home with two or three occupants.
Households with bigger properties and more residents will find their bills exceed the caps that are set in place, which means there will be thousands of families in the country forced to pay more than £3,000 per year for their energy from April if the government continues with plans to raise the EPG.
To keep bills low, it is always worth hiring someone who has their level 3 electrical training to check their home’s electrics are operating efficiently and effectively.