An easy first step
The Energy Price Guarantee, which limits how much energy suppliers can charge, is due to increase to £3000 from April 2023. This is a 20% increase on energy bills that have already nearly doubled since the start of 2022. This is unaffordable for many households and they need support. But how to provide support for energy bills is hard. Providing support to everyone can be expensive and targeting is difficult. This is why Citizens Advice has been working on how to develop long-term policy plans to protect households from high energy prices. In the short-term, lower wholesale energy prices give an opportunity to provide more support. An easy first step is to keep the Energy Price Guarantee (EPG) at £2500.
Social Market Foundation and Public First, in the report commissioned and supported by Citizens Advice, have found that 3 million British households would be spending more than 10% of their income (after housing costs) on heat and light if energy bills went up to £3,000. This is consistent with updated Citizens Advice analysis that shows the number of people unable to afford their energy bills would double from April if bills go from £2500 to £3000 — increasing from around 1 in 10 to around 1 in 5.
Lower wholesale energy prices means more can be done
Since the Autumn Statement, when the EPG was revised, wholesale energy prices have reduced by around 40%. This means the expected costs of providing the EPG for 2023/4 have also reduced. When the latest EPG scheme was announced, it was expected to cost £12.8bn. Based on current expectations for energy bills, EPG costs have now reduced to around £1bn. This creates some headroom for government to provide additional support, which they promised to look at in the Autumn Statement: ‘The government will keep the EPG under review and may revisit the parameters of the scheme, for example if the forecast cost increases significantly’
We recognise the headroom will be reduced by lower tax receipts from gas and electricity producers — including the new Energy Profits Levy and Electricity Generators Levy. These levies were brought in to tackle the extraordinary receipts and profits some producers are getting and were expected to raise around £15bn. This number will reduce but not to the same extent as the costs of the EPG. This is because energy bills, of around £3000, remain exceptionally high and so will still generate significant revenue from these levies but with low EPG costs. Overall, we believe keeping the EPG at £2500 should be do-able within the Autumn Statement funding envelope and there may be the potential to go further. A lower EPG will also have indirect benefits. It will reduce inflation and so encourage economic growth.
Energy bills will remain very high
Current forecasts are for energy bills to fall below £2500 later in 2023. This is a welcome result of the lower wholesale energy prices. Keeping the EPG at £2500 from April would allow customers to feel the benefits of these lower wholesale prices earlier. However, it should be remembered that this time last year the Ofgem retail price cap was £1277. The £400 Energy Bill Support Scheme is also ending. So, from April, many will be facing higher energy bills with no support. We predict we’ll see more people needing help with crisis support who are in work and who need help for the first time. Keeping the EPG at £2500 is a step in the right direction.
Note to Editors
This blog was written and shared by Andy Manning – Principal Economic Regulation Specialist Citizens Advice – on February 8th 2023.
