Annual energy bills will fall by £117 for millions of households from April after Rachel Reeves’s plan to cut £150 a year from bills was partly foiled by rising costs.
The energy regulator Ofgem’s quarterly cap will drop by 7% for the three months from April to £1,641 a year for the average combined gas and electricity bill in Great Britain for those paying by direct debit, from £1,758 under the current January-March cap.
The cut, which will provide some relief to stretched household finances, follows the November budget in which the chancellor shifted some green energy costs away from household bills and into general taxation and scrapped a billpayer-funded energy efficiency scheme.
However, for millions of households on variable tariffs the savings will be smaller than the £150 reduction in April promised by Reeves, as her cuts were partly offset by the increased cost of maintaining and upgrading the UK’s energy networks.
The savings will apply to all households, regardless of which tariff they are on, but will differ depending on how much energy they use and what type of deal they are on.
Households signed up to fixed-rate energy deals, about 40% of the market, will have the full impact of the government’s intervention passed to them by their supplier without the impact of rising grid costs – meaning they will see bigger savings on their bills than those on variable deals.
Without any intervention from the government, energy bills for all households would have climbed for a fourth consecutive quarter, despite falling wholesale energy markets, to reflect the rising cost of upgrading Britain’s grids.
Despite the fall in the price cap, which dictates the maximum that suppliers can charge their 29 million household customers for each unit of gas and electricity, domestic energy costs remain about a third higher than before Russia’s full-scale invasion of Ukraine triggered the European energy crisis.
Bills have remained higher since, pushing Britain’s energy debts to record levels, in part because gas market prices remain inflated because of the cost of importing more gas by tanker from the US and the Middle East – but also because of the higher costs of the UK’s energy transition. Network charges increased by £66 from the last cap, Ofgem said.
Keir Starmer said on Wednesday: “I know there is more to do and my government is pulling every lever to bear down on the cost of living and protect the pound in the pockets of working people.”
Tim Jarvis, the director general of markets at Ofgem, said: “Today’s announcement will be welcome news for many households. Wholesale energy prices have fallen in recent months, and we’re investing in our network to safeguard the future energy system. The main driver of today’s reduction is the change to policy costs announced by the chancellor in the budget.”
Peter Smith, a director at National Energy Action, a fuel poverty charity, said: “Any fall in sky-high energy bills is welcome. But the new level is still far from affordable. Those on the lowest incomes in the leakiest homes will face deep debt and will still struggle to stay warm and well at home.”
Clare Moriarty, the chief executive of Citizens Advice, said: “A fall in energy prices is welcome but for many people bills remain stubbornly high. For millions of households this has stopped being a temporary hardship and become an ongoing threat to their financial stability.”
The cost of electricity in the UK, which is among the highest in the developed world, has emerged as a key political dividing line after the opposition parties Reform UK and the Conservatives pledged to cut costs for households and businesses by scrapping key elements of the government’s plan to reach net zero to boost the economy.
Craig Lowrey, the principal consultant at Cornwall Energy, a leading consultancy, said there needed to be “an open conversation about the fact that such a transition will not be cost‑free”.
He said: “Bills aren’t going to drop by two or three hundred pounds overnight, but long-term progress is possible if we stick with the transition.”
The cap on electricity unit rates will drop by 10.9% to 24.67p a kilowatt hour to reflect the cut to government levies used to support renewable energy subsidies and the government’s warm home discount scheme. The cap on gas will fall by 3.2% to 5.74p a kWh because of the falling wholesale cost of gas.
When adjusted for inflation, the new cap is 12.3%, or £231, lower than the same period in 2025, Ofgem said. Wholesale prices, which make up the largest part of the bill, fell by 6% over the past three months.