Domestic energy prices

Trends in prices up to 2021

Gas prices were stable or falling for much of the period from 2013 to 2020. They started to increase towards the end of 2021. The average bill for the year was £564 compared with almost £700 in 2014.

Electricity prices increased for much of the last decade. Average bills were £769 in 2021 compared to £450 in 2010, a 36% real increase.

Prices in 2022 and beyond

The energy price cap increased by 12% in October 2021, 54% in April 2022 and was due to increase by 80% in October 2022 (gas by 91%, electricity by 70%). The April increase was equivalent to £700 more across a year for ‘typical’ levels of dual fuel consumption paid by direct debit. The October cap would have been an increase of almost £1,600.

The new Energy Price Guarantee (EPG) meant that prices people pay for gas and electricity from 1 October 2022 were less than under the original Q4 2022 cap and the subsequent caps for Q1 and Q2 2023. At £2,500 for typical annual consumption levels up to March 2023, it was still 27% above the summer 2022 cap. The gas element increased by 37%, electricity by 17%.

The EPG was due to increase to £3,000 in April 2023, but the Government put this increase back to July 2023. The reduction in the price cap for Q3 2023 means that maximum prices for customers on SVTs will fall. The EPG remains in place until March 2024 but would only set maximum prices again if the cap increased to more than £3,000.

The latest forecasts of what the price cap for ‘typical’ consumption are around £1,960 in Q4 of 2023 and £2,025 in Q1 2024. But these are highly uncertain at this stage. The briefing Gas and electricity prices under the Energy Price Guarantee and beyond looks in more detail at prospects for prices.

The rapid increase in prices in late 2021 led suppliers to withdraw cheaper fixed price tariffs. The large majority of households (29 million) are now on Standard Variable Tariffs (SVTs) which are controlled by the EPG.

 

The monthly increases in both gas and electricity prices in April 2022 alone were by far the largest ever recorded on a series going back to 1988. The annual increases to October 2022 were also the largest ever recorded on a series going back to 1970.

The Energy Price Guarantee

On 8 September the then Prime Minister Liz Truss announced that a new Energy Price Guarantee (EPG) would instead be introduced from 1 October. This was set at £2,500 a year for typical levels of consumption and was initially planned to last two years.

After a change of Prime Minister and Chancellor the new Chancellor of the Exchequer announced on 17 October 2022 that the Energy Price Guarantee would now only last sixth months ending at the end of March 2023. The Government set up a review to design a new more targeted approach which costs the taxpayer less.

In the Autumn Statement 2022 the Chancellor announced that from April 2023 bills under the EPG would increase from £2,500 to £3,000 for ‘typical’ annual consumption. This higher price level was planned to last to the end of March 2024. It was expected at the time to save the Government £14 billion compared to keeping the EPG at £2,500 for the whole of 2023-24.

On the morning of Budget 2023 the Chancellor announced that the EPG would remain at £2,500 for an additional three month to the end of June 2023. It would then increase as planned to £3,000 from July 2023 to March 2024.

Under the EPG the average annual gas and electricity bill for a direct debit customer with ‘typical’ levels of consumption is £2,500 from October 2022 to June 2023. This is 27% higher than the summer 2022 price cap and 96% higher than the winter  2021/22 price cap. Gas has increased by more over this period; up by 141% since winter 2021/22 compared to a 65% increase for electricity. The EPG caps unit costs and standing charges only, so a household using more than ‘typical’ levels of energy will face higher bills and vice versa.

Households also received the £400 Energy Bills Support Scheme (EBSS) payment which covers the period 1 October 2022 to 31 March 2023.

The cost of the EPG has fallen due to lower than expected wholesale prices. It is forecast to cost around £27 billion over its entire duration. The Energy Bills Support Scheme is expected to cost £12 billion in 2022-23.

The Energy Price Guarantee and the “£2,500 average bill” figure from October 2022

The EPG sets a cap on the daily standing charges and prices per unit of gas and electricity. These vary between regions. The EPG does not set a cap on anyone’s total energy bill. The Government uses ‘typical’ annual levels of consumption (2,900 kWh for electricity and 12,000 kWh for gas) to illustrate what the capped unit costs and standing charges would mean for an annual bill. Under the EPG this is £2,500 on average for a direct debit customer across Great Britain, but, as with the price cap, if a household uses more than typical levels they pay more than this, if they use less they pay less.

The EPG for a prepayment customer, again with the same ‘typical’ usage levels, is £2,544, and higher still at £2,702 for a standard credit customer (paying by quarterly bills).

The ‘typical’ levels of consumption are median values for Great Britain over the past few years. The median is the middle value if all individual values are sorted from largest to smallest. It is based on all domestic properties in the country, but there is a large difference in consumption between different types of properties and households. This means the overall median may not be a good guide to a ‘typical’ annual bill for many households. EPG annual bills for some different types of properties are set out below. These are based on median consumption for these dwellings in 2019:

• Detached house with five or more bedrooms: £4,500
• Three-bedroomed semi-detached property: £2,670
• One-bedroomed flat: £1,440

These are still only ‘typical’ annual bills and there will be considerable variations in energy use within these categories depending on their levels of insulation, floorspace, where in the country they are etc.

The unit cost and daily standing charge figures used by the Government to produce the £2,500 figure are averages for Great Britain. The caps are different in each energy supply region. Using the same ‘typical’ annual consumption levels for each region gives annual bills for direct debit customers which vary from around £2,450 in the East Midlands regions to £2,580 in the North Wales & Mersey region.

All these annual bill figures exclude the £400 Energy Bills Support Scheme which will be paid through cuts in bills between October 2022 and March 2023. This is a flat rate payment which goes to all households regardless of their energy use. It therefore means a larger percentage cut in bills for customers who use relatively small amounts of energy and vice versa.

Variations in prices

Customers who pay by direct debit have traditionally been offered the cheapest tariffs. The gap between payment methods has fallen over time, especially after 2017 when a price cap on prepayment meters was introduced.

There is relatively little difference in energy prices across Great Britain. Combined gas and electricity bills for standard levels of consumption varied in 2022 from £2,162 in the North East to £2,330 in North Wales & Merseyside. 

Over much of the last decade smaller energy suppliers have tended to offer cheaper tariffs than the standard variable tariffs (SVTs) offered by large established companies. Wholesale price rises from summer 2021 have meant that most of these cheaper offers have been withdrawn.

In the second half of 2022 UK domestic gas prices were above those in most of the EU, while UK electricity prices were higher than all but one EU country. UK consumer prices for gas and electricity increased by substantially more than the EU average increase in both the first and second half of 2022.

Customers not covered by the cap or Energy Price Guarantee

There is no price cap on non-domestic energy so increases in business energy bills could be larger still, affecting the economic viability of some and feeding through to higher consumer prices in general. The Government announcement on the Energy Price Guarantee said that there would be “equivalent support” for businesses and other non-domestic consumers.

On 21 September it announced that households not on the gas grid and using heating oil or other fuels would receive a payment of £100. This was increased to £200 in the Autumn Statement. The Government has also said that there would be equivalent support for households not on standard gas/electricity contracts such as those living in park homes or on heat networks. The Government also released details of its support for non‑domestic consumers, the Energy Bill Relief Scheme, on 21 September.

Households in Northern Ireland were not protected by the price cap or Energy Price Guarantee. The Government announced its plans for support for households in Northern Ireland on 21 September. This includes support equivalent to the Energy Price Guarantee which will be introduced in November bills and backdated to October. There will also be a £600 payment to all households in Northern Ireland to help with energy bills in winter 2022/23. This is made up of the £400 Energy Bills Support Scheme plus the £200 Alternative Fuel Payment.

Crude oil prices jumped when Russia launched its full-scale invasion of Ukraine on 24 February 2022 and continued to increase through early March. These increases quickly fed through to heating oil prices.

Average monthly heating oil prices increased from just over 20 pence a litre at the start of the first lockdown to 99 pence a litre in mid-June 2022, before falling back to around 62 pence a litre in mid-April 2023.

What support did the Government offering households in 2022-23?

The Energy Price Guarantee (see above) is the main method the Government has used to support households. There has also been a number of different schemes offering direct support.  

In February 2022 the Government announced a package of support to help households with rising energy bills,

The package included a £200 upfront discount on bills in October 2022 (paid for by customers in £40 instalments over the following five years), a £150 Council Tax rebate for around 80% of households in England, £144 million in discretionary funding for local authorities and £715 million for the devolved administrations.

On 26 May 2022, when the October cap was forecast to be around £2,800, the Chancellor announced a further package of measures intended to help with the cost of living, including higher energy bills, in 2022‑23. This included:

• Doubling the upfront discount on bills to £400 for all households and scrapping the requirement for it to be repaid.
• A £650 one-off payment to around 8million households on certain means tested benefits
• A £150 one-off disability cost of living payment for people who receive certain disability benefits
• A one-off £300 payment for over 8million pensioner households
• An additional £500 million of local support through the Household Support Fund.

Households couldreceive multiple elements of this package if they are eligible. The total value of this additional support in 2022-23 was estimated at £15.3 billion. The gross cost is £21.3 billion as it converts £6.0 billion of earlier support from a loan to a grant.

This extra spending will be partly supported by a new windfall tax, the Energy Profits Levy, which the Government expects to raise £5 billion in its first year. The briefing Energy Bills Support Scheme: Government policy and FAQs gives more details.

Why have energy prices increased?

Prior to Russia’s full-scale invasion of Ukraine in February 2022 there was an increase in demand for oil and gas as economies around the world came out of lockdown. Supply did not keep pace with the higher demand for various reasons. Increased gas prices fed through to increased electricity prices.

The Russian invasion of Ukraine in 2022 caused oil and gas prices to jump due to concerns about disruption to supply. Sanctions on Russia, the embargo on Russian oil, a potential embargo on Russian gas and cuts in Russian gas supply to Europe have pushed oil and gas prices up further still. The price of electricity produced form gas has increased in line with gas prices and effectively sets the price for all power on wholesale markets. Lower electricity production in some sectors have also helped to push up power prices. Drought in parts of Europe have led to lower hydroelectric output and a large number of French Nuclear reactors were offline in late summer.

Wholesale gas and electricity prices on the spot market fell in autumn 2022 to levels below those at the start of the year. There was a spike in prices during the early December, but prices have steadily fallen back again over winter and spring. The operation of the price cap and the EPG mean that there will be a substantial time lag before these lead to lower household bills.

How will price rises affect lower income households?

Spending on energy varies less by income than any other spending category. This means lower income households have to spend a much larger share of their family budgets on energy than higher income groups. Recent sharp increases in energy prices will have a disproportionate impact on lower income households.

The April 2022 price cap and Energy Price Guarantee level from October suggest that it would cost the poorest 20% of households an additional £1,000-1,100, and pensioner households around an additional £1,400, to use as much energy in financial year 2022-23 as they did in 2020‑21. This is before the extra support the Government has announced is taken into account.

Components of a typical energy bill

The July to September 2023 price cap consists of:

• 51% wholesale costs of energy
• 19% network costs
• 11% operating costs
• 8% policy costs (levies to support low carbon generation, energy efficiency and vulnerable customers)
• 5% VAT
• 2% assumed suppliers (profit) margin
• 4% other costs.

Further information

Readers may be interested in the following related briefing papers from the House of Commons Library:

• Gas and electricity prices under the Energy Price Guarantee and beyond
• Introduction to the domestic energy market
• Constituency casework: Government support for energy bills
• Energy Prices Bill 2022-23
• Energy bills and the price cap
• Energy Bills Support Scheme: Government policy and FAQs
• Rising cost of living in the UK
• Imports of energy from Russia
• Fuel Poverty in the UK
• Local area data: fuel poverty
• Oil prices
• Petrol and diesel prices
• Energy price rises and the Energy Bills Rebate.

The following pages include the most useful official data on energy prices:

• Domestic energy price statistics (DESNZ)
• Retail market indicators (Ofgem)
• Wholesale market indicators (Ofgem)

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