(Bloomberg) -- The UK has kept its energy price guarantee at current levels for a further three months, easing pressure on households as the government works to ensure bills reflect falling natural gas costs.
The EPG will remain set at £2,500 ($3,037), the Treasury said Wednesday. That means dual-fuel tariffs will stay stable until July, though customers will still be paying almost double what they were charged two years ago.
The government moved to prevent an expected £500 increase in annual energy costs for consumers in April. Goldman Sachs Group Inc. has said keeping the EPG unchanged will help UK inflation ease to 1.8% later this year from more than 10% now.
“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too,” said Chancellor Jeremy Hunt. The Treasury said the extension of support will save households £160.
The Chancellor also announced that the more than four million households with prepayment energy meters will see rates brought in line with normally lower charges used in direct-debit invoicing. It is expected to save financially vulnerable consumers £45 a year and comes after the government previously ordered suppliers to stop forced installations of the technology amid a political backlash.
A more than 80% drop in gas prices since last August is yet to show up as a reduction in bills as energy firms pay for supply months in advance and charge customers according to costs at the time of purchase. But consumer advocacy groups have urged policymakers to ensure bills don’t rise when real-time prices are falling.
“If wholesale prices continue to drop, the next price cap in July could be cheaper, meaning we’ll go back to Ofgem dictating default tariff prices every quarter,” said Richard Neudegg, director of regulation for price-comparison website Uswitch.
The EPG means the government limits the maximum price per unit of power and gas, paying any cost of a bill above that level. The Treasury says that the next three months of support will be £4 billion, only a third of the estimated costs of the support which were calculated last autumn.
Soaring gas costs drove UK inflation to a 40-year high last year, pushing up the cost of everything from goods to energy bills. Although prices are expected to ease over the next 18 months, factors beyond fuel prices could continue to keep inflation elevated, according to Bloomberg Economics.
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The EPG staying at current levels and a drop in wholesale prices has led Goldman Sachs to forecast that inflation will fall from 10.1% now to below Bank of England’s 2% target by the end of the year. This would help to ease the strain on household budgets after months of the worst cost of living squeeze in decades.
Still, Britons will continue to pay far more for their energy bills than they did before Russia’s invasion of Ukraine. The average annual household energy bill from April will be £285 more than a year earlier, according to the Energy and Climate Intelligence Unit, an independent nonprofit. An energy bill support program — a £400 subsidy given over the winter — is also set to end next month.
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Charities such as Citizens Advice and National Energy Action have repeatedly called for long-term support for households. NEA expects an estimated 7.5 million people to be in fuel poverty, even with the EPG remaining at current levels.
Support for small businesses from the Energy Bill Relief Scheme is still set to end in April. With more than 350,000 firms having to downsize, restructure or close due to an increase in energy bills, “the Treasury’s failure to extend the Energy Bill Relief Scheme is a disappointing turn of events for SMEs,” said Joseph Calnan, manager of corporate FX dealing at financial services provider Moneycorp.
Suppliers could begin to help customers cut costs by offering fixed deals, according to Uswitch. Fixed annual contracts below £2,500 would help reintroduce market competition and meet demand for stable pricing, it said.
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--With assistance from Kitty Donaldson and Elena Mazneva.
(Updates with details about prepayment meters in 5th paragraph.)
©2023 Bloomberg L.P.
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