This article is more than 1 year old

This article is more than 1 year old

Energy bills for millions of British households will fall by £75 this winter after Ofgem reduced its price cap on standard tariffs to reflect lower costs for suppliers.

Under the lowered cap, the average annual energy bill for 11m homes will fall from £1,254 to £1,179 through the months from 1 October to the end of March.

A further 4m households will benefit from a £25 fall in their winter energy bill under a separate cap for pre-paid meters.

Pre-payment meter customers will pay a maximum of £1,217, down from £1,242.

The industry’s statutory regulator said it lowered the price cap to reflect falling energy market costs, which typically make up almost half of the average household energy bill.

The UK’s tumbling gas and electricity market prices helped to wipe out the slightly higher cost of investing in energy networks and renewable energy projects, which are paid for through bills.

Dermot Nolan, the chief executive of Ofgem, said: “The price caps require suppliers to pass on any savings to customers when their cost to supply electricity and gas falls.

“This means the energy bills of around 15 million customers on default deals or pre-payment meters will fall this winter to reflect the reduction in cost of the wholesale energy,” he said.

The regulator introduced the energy price cap on 1 January after sustained pressure from the government to stop energy companies from taking advantage of loyal customers.

Under the cap, energy companies are allowed to make only £21 of profit from the average annual energy bill, which has dealt a heavy financial blow to the biggest suppliers.

Ofgem estimated that the cap would effectively save bill payers £1bn by cutting “overcharging” from the energy market.

British Gas has taken the brunt of the financial blow after issuing a warning that it would lose £300m this year as a result of the cap. Its owner, Centrica, is also cutting thousands of jobs and has halved dividend payouts to shareholders, which include 60,000 individuals.

SSE was also forced to issue a profit warning before revealing it had lost £176m from its supply business by the end of March, only three months after the cap was brought in.

A spokesman for SSE said theprice cap was “rife with unintended and undesirable consequences”.

“We believe that vulnerable customers who face particular barriers may require continued support but wider price interventions are unhelpful,” the spokesperson said.

The company is calling for the government to replace the current cap with a regularly published benchmark price which would act as a guide for consumers by pinpointing a fair energy price.

“No one likes to see jobs being lost but the companies did need to make cuts to operating costs and they did need to be more efficient,” Nolan said.

Greg Jackson, the chief executive of Octopus Energy, said: “I’m sure Big 6 lobbyists will be trying to get the government to drop the cap, but it’s proven to be as important in protecting energy customers as the minimum wage is for workers.”

There are more than 100 fixed-price energy deals on offer, many of which are hundreds of pounds cheaper than the price of Ofgem’s energy cap.

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Natalie Hitchins, head of home products and services at the consumer group Which?, urged customers to switch energy providers to gain the best rate.

“Lowering the price cap will provide some relief to hard-pressed households – but millions of energy customers on default tariffs will still be left paying hundreds of pounds more than they need to each year,” she said.

Households using pre-pay meters often find it more difficult to switch supplier, and will see a smaller cut to their energy bills than standard energy tariffs after the Competition and Markets Authority adjusted the way in which it is calculated.

As a result, pre-pay customers, who are more likely to be vulnerable, will for the first time pay more than standard users under Ofgem’s energy price cap because the regulator factors in the higher operating costs of maintaining the meters.

Peter Smith, a director at the fuel poverty charity NEA (National Energy Action), said more should be done to protect the fuel poor, including more taxpayer-funded support and home insulations. “We must also address the main causes of fuel poverty and invest central government funding back into energy efficiency,” he said.