Energy Price Guarantee on course to cost £16 billion over the winter months

The Ofgem announcement today (Thursday) that the annual energy bill of a typical household would have risen to £4,279 between January and March 2023, were prices not capped by the Government’s Energy Price Guarantee (EPG), means that supporting all households with energy bills over these three months will cost £16 billion, according to Resolution Foundation analysis.

The EPG is set to save a typical energy bill payer around £630 between January and March next year. High energy use during the winter months – 45 per cent of annual household gas use takes place in the first quarter of the year – means that it is this period when the benefits (and costs) of the EPG are highest.

However, the Foundation notes that given the high variability in energy usage, millions of households are set to face bills significantly in excess of the EPG. A typical pre-payment meter customer is set to face a monthly bill of around £260 in January 2023 (accounting for the additional £67 monthly payments via the Energy Bills Support Scheme). Even with these two layers of government support, this will be close to double the £140 bill that the same household would have faced in January 2021.

High bills in winter months are made worse still for families living in poorly insulated properties, with the typical household in a home rated at F on the EPC scale consuming two thirds (65 per cent) more gas in the first quarter of the year than they would do if they lived in a C rated property.

This extra gas use means each poorly insulated home brings an additional cost to the exchequer of £200 over just three months. The Autumn Statement saw an additional £6 billion of government spending pledged to insulate the nation’s leaky homes, funding that is vital in ensuring energy bills are kept down permanently, says the Foundation.

Energy support will be scaled back from next year, as the EPG is increased to £3,000 and the £400 Energy Support Scheme is ended. As a result, typical bills will be at least 40 per cent higher next year than this year. The energy bill rollercoaster will continue for pre-payment meter customers whose monthly bill in January 2023 bills is currently forecast to hit £420.

Jonny Marshall, Senior Economist at the Resolution Foundation, said:

“Today’s price cap announcement illustrates just how much support the government is providing with energy bills this winter – around £630 over three months for a typical bill payer.

“The £16 billion cost to the Exchequer is eye-watering, but a price worth paying in order to avoid an already acute cost-of-living crisis getting dangerously worse over the cold winter months. This is highlighted by the extra support costs needed for families in badly insulated properties, coming at a cost to the government of £200 per home.

“Support with energy bills is due to be massively scaled back next year. But with future gas prices highly volatile, we’re unlikely to have heard the last word on how households are supported through this crisis.”