The price the Government will pay to shield households from rising energy bills will more than double in the new year after Ofgem today raised the energy price cap.

The energy price cap is a backstop protection from the government for people who default on their supplier's basic energy tariff.

However, this rise will not impact the price that household pays for their energy bills due to the Government’s Energy Price Guarantee (EPG).

The EPG came into effect on October 1, 2022. The new scheme was announced to reduce the unit cost of electricity and gas so that a household with typical energy use in Great Britain pays, on average, around £2,500 a year on their energy bill, for the following 6 months.

Today's price cap rise will come into effect in January 2023 and will force the Treasury to pay 33p per unit of electricity and nearly 7p per unit of gas that homes across Great Britain use.

Hereford Times: UK households to save almost £2000 on energy bills as Ofgem price cap raisedUK households to save almost £2000 on energy bills as Ofgem price cap raised (Image: PA)

It will also push up the cost of running the Government’s energy price guarantee from £7.8 billion in the last three months of 2022 to £15.1 billion in the first three months of next year, according to estimates by energy consultancy Auxilione.

Without the Government’s support, bills for the average household would be 67p per unit of electricity instead of 34p, and 17p per unit of gas instead of 10.3p.

Households to save on energy bills following price cap rise

Energy is charged per unit, so those who use more can spend more.

The average household bill would have reached around £4,279 per year, instead of the £2,500 that they will now pay due to Government support.

The Government support will become less generous from April when average households will start paying £3,000.

That figure is for households that use an average amount of energy. Households that use more will pay more, and those using less will pay less.

“There is no immediate action for consumers to take as a result of today’s announcement,” Ofgem said on Thursday.

In the past, the price cap has regulated how much a household pays for its gas and electricity. However, the cap is set based on what it costs energy suppliers to buy gas and electricity on wholesale markets.

The cap, therefore, has no impact on households but does affect Government finances.

It means the Government will pay around 33p every time someone uses their oven for half an hour or an electric shower for six minutes, according to estimates from energy supplier Ovo.

Rocio Concha, director of policy and advocacy at Which?, said: “The news that the energy price cap will hit £4,279 from January will be hugely worrying for consumers but they should remember that their bills are protected against this price increase by the Government’s energy price guarantee scheme.”

He added: “Which? is also concerned that hundreds of thousands of customers on traditional prepayment meters have not yet claimed the government support that is available.

“Energy firms and the Government must work to understand why so many Energy Bill Support Scheme vouchers have not yet been redeemed, and ensure that customers on these prepayment meters – who are more likely to be vulnerable and on lower incomes – are able to access this vital support.”