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There is a huge sigh of relief across millions of households this morning as the new energy price cap has been set by Ofgem, with it resulting in huge savings for UK residents.
Ofgem, the body which regulates the United Kingdom's energy sector, has lowered the price cap for gas and electricity to its lowest point in two years.
There's been a whopping 12.3% drop in the price cap across England, Scotland and Wales.
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It's the lowest it has been since Russia's invasion of Ukraine back in February 2022; a move that caused global unease and spikes in the cost of raw materials for both suppliers and customers.
Currently, the energy price cap is set at £1,928 a year. This doesn't mean you're being charged this but rather it is the maximum an energy supplier can charge you every year for using energy in your home.
The new cap has been set at £1,690 a year.
This means, on average, every house will be £238 a year better off.
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It's around £20 a month when you're doing your monthly finances and certainly goes towards something in regards to your excess income.
It's a huge move away for the better since the worst days of the current cost of living crisis, with households now £690 a year better off than when prices were at their worst. The change will come in from April this year.
Ofgem has also said that for those struggling, it is introducing a temporary additional payment of £28 a year, or £2.33 a month, to make sure suppliers have enough funds to support those in urgent need of help.
This will be added to the bills of customers who pay by direct debit or standard credit and is to be partly offset by the end of an allowance worth £11 per year that covered debt costs related to the Covid pandemic.
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Money Saving Expert founder Martin Lewis said: "The cap dictates the price the huge majority of homes in England, Scotland and Wales pay for energy (so that's you unless you're on a fixed or special tariff) as most firms just charge the max. It moves every three months, mostly based on average wholesale rates, yet there’s a time lag eg this April to June Cap is based on Nov to Feb rates.
"The new rates for 1 April have just been announced. In a nutshell, for every £100 a Direct Debit user spends on energy today, they’ll pay £87.70 for it from 1 April.
"So it’s an improvement, and predictions are it’ll drop again in July, though overall prices are still too expensive, nearly double the price of the cheapest pre-crisis."
Ofgem chief executive Jonathan Brearley said: “This is good news to see the price cap drop to its lowest level in more than two years – and to see energy bills for the average household drop by £690 since the peak of the crisis – but there are still big issues that we must tackle head-on to ensure we build a system that’s more resilient for the long term and fairer to customers.
“That’s why we are levelising standing charges to end the inequity of people with prepayment meters, many of whom are vulnerable and struggling, being charged more up-front for their energy than other customers.
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“We also need to address the risk posed by stubbornly high levels of debt in the system, so we must introduce a temporary payment to help prevent an unsustainable situation leading to higher bills in the future.
"We’ll be stepping back to look at issues surrounding debt and affordability across market for struggling consumers, which we’ll be announcing soon."
Prepayment meter customers will not have to pay the extra charge, as many do not build up the same level of debt as credit customers because they top up as they go, Ofgem said.
The regulator also confirmed plans to set a permanent solution to prepayment customers paying higher standing charges, which was removed by the Government’s temporary Energy Price Guarantee.
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Ofgem said the solution must be funded by bill-payers rather than taxpayers, to maintain fairness, meaning prepayment customers will save around £49 per year, while direct debit customers will pay £10 more each year.
Featured Image Credit: Getty Stock ImagesTopics: Cost of Living, UK News, Money, Martin Lewis