Ofgem confirms 7% fall in prices

Energy bills will fall by 7% in July – the first drop for a year, energy regulator Ofgem has announced.

It means a household using a typical amount of gas and electricity will see their annual bill fall by £129.

The regulator’s price cap, which is set every three months, sets a maximum that suppliers can charge for each unit of energy, affecting 21 million households in England, Scotland and Wales.

Charities say cheaper bills are welcome but many people still struggle to pay, with millions of customers collectively owing about £4bn to suppliers.

The price cap does not apply in Northern Ireland, which has its own energy market.

Tim Jarvis, director general of markets at Ofgem, said the drop in energy bills reflected a fall in the international price of wholesale gas.

“However, we’re acutely aware that prices remain high, and some continue to struggle with the cost of energy,” he added.

The fall comes at the warmest time of the year, when energy use is lower, but analysts expect little change in prices in October.

Although the cap changes every three months, the regulator illustrates the effect of this with the annual bill for a household using a typical amount of gas and electricity.

This typical household is assumed to use 11,500 kWh of gas and 2,700 kWh of electricity a year with a single bill for gas and electricity, settled by direct debit.

The 7% fall would mean a typical annual bill for a dual-fuel customer paying by direct debit would cost £1,720, down from the current level of £1,849.

It would also more than reverse the £111 increase under the current price cap, which came into force at the start of April.

Customers can also estimate their own potential saving by knocking 7% off their monthly direct debit.

However, prices would still be higher than a year earlier, and significantly above levels seen at the start of the decade.

High bills in recent years have also led to ballooning levels of customer debt to suppliers, with just under £4bn owed.

Dame Clare Moriarty, chief executive at Citizens Advice, said the latest energy price cap announcement would be “cold comfort to the millions paying off a mountain of debt on top of their monthly costs”.

“The government has said it hopes to provide more support to pensioners this winter, but we know that people with children are often struggling most of all with energy,” she said.

“It must provide more targeted energy bill support to those hardest hit, and upgrade five million homes with money-saving energy efficiency measures.”

Ofgem has pointed to cheaper options available for households willing to switch to a fixed deal, although customers who are saddled with debt may not be allowed to switch.

The price cap announcement comes just two days after Prime Minister Sir Keir Starmer signalled a partial U-turn on cuts to winter fuel payments.

More than 10 million pensioners lost out on the payments, worth up to £300 when the top-up became means-tested last year.

However, Sir Keir said on Wednesday that the government wanted “more pensioners” to be eligible again.

It remains unclear how many will regain their entitlement for the payments, how that will be achieved, or when the changes will take effect.

Bills are calculated based on individual usage. However, standing charges, which cover the cost of being connected to an energy supply, are fixed.

The regulator said these charges would typically drop by £19 a year under the latest cap for people on variable tariffs or prepayment meters, although they vary sharply by region.

The latest changes mean that in July:

• Gas prices will be capped at an average of 6.33p per kilowatt hour (kWh), and electricity at 25.73p per kWh – down from 6.99p and 27.03p respectively. A typical household uses 2,700 kWh of electricity a year, and 11,500 kWh of gas
• Households on pre-payment meters are paying slightly less than those on direct debit, with a typical annual bill of £1,672
• Those who pay their bills by cash or cheque are paying more, with a typical annual bill of £1,855
• Standing charges have fallen to 51.37p a day for electricity and to 29.82p a day for gas, compared with 53.8p and 32.67p respectively, although they vary by region

The regulator is consider changes to the system of standing charges, although that has brought renewed debate over how they operate.