Let’s remember that [the government’s] plan would still see energy bills rising by another £500 this October.
The leader of the Liberal Democrats, Sir Ed Davey, told the Today program that people’s energy bills will rise by £500 in October under the government’s current plans.
This is correct, but it does not take into account support measures also announced by the government. The typical household will receive about £400 through the Energy Bill Support Scheme—although different households will have very different experiences, depending on their energy use, and their eligibility for other benefits both in October and in the past.
Mr Davey said: “We need to both get more help to people with their energy bills. Let’s remember that [the government’s] plan would still see energy bills rising by another £500 this October on top of the £700 last year. So they haven’t really delivered on the energy bill freeze that Liberal Democrats argued for.”
As Mr Davey mentioned the Liberal Democrats’ plan to freeze the cap on household energy bills, we have assumed the “people” he refers to are households, rather than businesses, so domestic energy bills are the focus of this piece.
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How are energy bills changing?
Most people’s energy bills are currently governed by a price cap set by the regulator, Ofgem. The price cap limits how much people can be charged for each unit of gas and electricity they use. It therefore doesn’t limit the size of their actual bill, which can always rise or fall if they consume more or less energy.
Gas and electricity consumption is measured in kilowatt-hours, just as you might use liters or gallons to measure a car’s consumption of petrol. However, changes in the price cap are not often publicly discussed in terms of the unit price per kilowatt-hour, which may not feel meaningful to many people.
Instead, Ofgem, the government and others tend to talk about what the changing unit price would mean for a typical household’s annual bill, based on a typical household’s dual-fuel energy consumption when paying by direct debit. Although because the price cap has been rising substantially every six months, people haven’t actually had a whole year at the prices set in October 2021, and won’t have a whole year at April 2022 prices either.
So when people talk about household bills rising by a certain amount when the price cap rises, it usually means the difference between an annual bill at the old rates and an annual bill at the new ones—even if those rates don’t actually last for a whole year.
What Mr Davey left out
In October, the government’s Energy Price Guarantee will effectively replace the Ofgem price cap by reducing the unit cost of electricity and gas, and thereby limit the typical household’s annual energy bill at about £2,500 per year, for two years. This is a £529 rise from the £1,971 level for direct debit customers set by the Ofgem price cap in April.
However, all households with a domestic electricity connection will also start to receive a discount in October under the Energy Bills Support Scheme that was announced in April. This is worth £400, and offsets most of the October rise in the annual bill for a typical household.
Mr Davey did not mention this.
When Full Fact contacted the Liberal Democrats, the party told us that people’s annual bills from October 2022 will be much higher than they were in the year before.
This is true, but Mr Davey clearly says that the £500 rise in October is “on top of” the previous rise of around £700 in April. (He says “last year”, but the figure seems to be referring to the April 2022 rise.) He therefore appears to be talking only about the effect on annual bills of the change in October—£400 of which will be discounted.
The Liberal Democrats also said that the government had not announced a further £400 discount for the Energy Price Guarantee’s second year.
While this may be true, it has no bearing on how much bills will rise from next month, which is the period Mr Davey was talking about.
What about other benefits?
Some might argue that the rise in the typical household’s energy bills in October will be somewhat larger, because most households will have received a £150 rebate on their council tax by the end of September, as part of the government’s earlier plans to support people’s energy costs.
A typical household receiving this rebate would therefore arguably have had a £150 reduction in their energy costs in the year before October as well—even if it did not directly change their energy bills. Such a household might therefore expect their annual bill to rise by £529 in October, but their annual energy-related benefits to rise by only £250 (from £150 to £400), compared with the year before.
A range of other benefits are also available to some households in particular need of support. However, it is not clear whether the typical household would receive these, since many are intended for pensioners or people receiving specific benefits. Nor is it clear whether the benefits would change for the typical household after October.
The government has also announced a separate energy support scheme for non-domestic customers, including businesses, charities and public bodies.
Image courtesy of Chris McAndrew