Energy bills will fall for around 15million households with Ofgem announcing a price cap reduction of £17 a year.
This means that households on standard variable tariffs will pay no more than £1,162 on their bills after the cap comes into effect in April – falling from £1,179.
The bi-annual review of the cap by the energy regulator also revealed that those with pre-payment meters will see their cap fall to £1,200, from £1,217.
Experts had predicted the cap was due to fall as wholesale energy prices have fallen over the past year. However, most estimated the reduction would be much higher and bills could have been cut by as much as £60.
Energy bills are set to fall for around 15m households as the price cap has fallen by £17 a year
Jonathan Brearley, the chief executive of Ofgem, said: ‘Suppliers have been required to become more efficient and pass on savings to consumers.
‘In its first year, the cap is estimated to have saved consumers £1billion on average on their energy bills and switching rates have hit record levels.’
Despite the reduction, experts are still advising customers on default tariffs to shop around to see if they can find a better deal online.
Even the Big Six have recently lowered their prices in order to gain back customers they have lost to smaller, cheaper suppliers with some now offering the cheapest deals on the market.
Ed Dodman, director of regulatory affairs at the Energy Ombudsman, said: ‘This reduction in the price cap is good news for the millions of UK households currently on default tariffs, but shouldn’t discourage people from shopping around for better deals.
‘When switching, we would encourage consumers to look at the customer service they can expect to receive as well as how much money they could save.’
Rik Smith, energy expert at Uswitch, added: ‘If you’re one of the 11million households still on your supplier’s default tariff, you could be forgiven for thinking that £17 a year off your energy bill is better than nothing.
‘But that pales into insignificance when you realise you could be as much as £377 a year better off by moving away from your poor value standard deal.
‘This is the warning for anyone depending on the price cap to give them a better deal: it really won’t.
‘The price cap is still higher than it was when it was introduced a year ago, while the price of the best value deals has been plummeting for most of that time. The cheapest tariff now costs £180 less than this time last year.’
Experts have encouraged customers to use comparison sites to see if they could save money
This is the third time the cap, which is reviewed every six months, has been changed by the energy regulator.
Ofgem was previously criticised for announcing plans to hike the cap by £117 to £1,254 this time last year, just over a month after it was first introduced, wiping out the promised savings almost immediately.
Thanks to this decision, nearly 670,000 households changed supplier in April alone, the month that the changes came into force, with many opting to switch to smaller providers who typically offer cheaper tariffs.
However, six months later it dropped the cap again, to £1,179, as market conditions changed.
On Wednesday, Which? released data that showed energy firms have been lowering their prices ahead of the new price cap.
The number of deals which cost below £1,000 for the average household have increased from 12 before the cap was introduced in January last year, to 78 today.
Critics also feared that the price cap would discourage people from switching, however, many energy companies have managed to attract customers by keeping their fixed-price deals well below the cap level.
This helps explain why switching hit a record high in 2019, with 6.4million households changing suppliers over the period, according to Energy UK.
Natalie Hitchins, Head of Home Products and Services, Which?, said: ‘This latest cut to the price cap may bring some slight relief to customers, but a recent surge in cheap energy deals could mean millions of people still stuck on poor value default tariffs are paying hundreds of pounds per year more than they need to.
‘We would urge anyone fed up with expensive bills to take advantage of the wider choice in cheap deals and switch suppliers – you could save hundreds of pounds a year and find a firm that offers better customer service.’
To see if you could save money, check out This is Money’s comparison service with Compare the Market.
Best deals on the market
The cheapest energy deal currently on the market is a fixed deal with Utility Point, which prices averaging just £785 a year on their Just Up 20 Wk06 Direct tariff.
However, this isn’t a green tariff and customers will be charged an exit fee of £72 if they decide to leave before the year is up.
Outfox the Market are the second best buy, at £791 a year, on their Fix’D 20 4.0 fixed tariff. This deal is green and comes with no exit fee, so is likely to be preferable for a number of households.
As the Big Six have made big improvements to their deals in recent times, Scottish Power, EDF and Eon all feature in the top ten best deals on the market.
Scottish Power offers the best deal out of three on their Super Saver April 2021 B3 fixed tariff, costing an average of £855 a year.
|Supplier||Plan name||Tariff type||End date||Green?||Exit fee? (£)||Average price (£)|
|Utility Point||Just Up 20 Wk06 Direct||fixed||12m||N||72||785|
|Outfox the Market||Fix’D 20 4.0||fixed||12m||Y||0||791|
|People’s Energy||People’s Energy 2 Months Upfront Winter 20 v3 Tariff||fixed||12m||Y||60||813|
|Gulf Gas and Power||Gulf Home Renewable 12 February 21 v2||fixed||28/02/2021||Y||60||821|
|Avro Energy||Simple and SuperFlow||fixed||12m||N||0||835|
|Yorkshire Energy||Green Whitby – Fixed until 31st March 2021||fixed||31/03/2021||Y||60||835|
|ScottishPower||Super Saver April 2021 B3||fixed||30/04/2021||Y||60||855|
|EDF Energy||Simply Online 1 Year Fix Feb21v4||fixed||28/02/2021||N||70||855|
|Green Network Energy||GNE Snow Surprise V4||fixed||12m||N||50||855|
|E.ON||Fix Online Exclusive v27||fixed||12m||Y||60||855|
Can you cut your energy bills?
This is Money has partnered with Compare the Market to offer readers a simple way to try to save on their energy bills.
You can quickly check for great deals for your home. Plus, if you switch via our Compare the Market-powered service you can get Meerkat Meals and Meerkat Movies.*
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.