Household energy costs in Great Britain are expected to tumble by an average of £117 a year from April after Rachel Reeves announced in November’s budget that the cost of green subsidies would be removed from domestic bills.
The government’s quarterly cap on energy bills is forecast to fall after the chancellor’s decision to shift the levies used to support renewable energy projects into general taxation, and scrap a bill payer-funded energy efficiency scheme, according to Cornwall Insight, a leading energy consultancy.
The analysts predict that the price cap will fall to an average of £1,641 a year for a typical dual-fuel household from April, down from £1,758 a year under the current cap, despite slightly higher energy market prices.
Reeves’s energy cost intervention will in effect cut £145 a year from the average annual energy bill, according to the forecast, but the rising cost of maintaining and upgrading energy networks will partly offset these savings.
Craig Lowrey, the principal consultant at Cornwall, said: “The real test will be keeping those savings going. That won’t be easy as the UK continues to upgrade its networks and infrastructure. That investment is needed if we want an energy system that is more secure and resilient, after the consequences of exposure to global energy markets were made all too apparent in recent years. However, there needs to be an open conversation about the fact that such a transition will not be cost‑free.”
Even if energy bills fall as expected, they will remain about a third higher – about £425 a year – than they were before Russia’s invasion of Ukraine triggered an energy market crisis across Europe. This is in part because gas market prices remain higher owing to the cost of importing more gas by tanker from the US and the Middle East, but also reflects the higher costs of the UK’s energy transition.
The impact of wholesale gas market costs on the price cap is about £170 a year higher than four years ago, while the cost of Britain’s energy networks has climbed by £143 a year over the same period.
“The most important thing is transparency – being honest with people about why these changes are happening and how they fit into a longer-term plan,” Lowrey 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. Ultimately, a move to homegrown energy gives us a stronger chance of eventually achieving price stability while providing greater energy security in the process.”