Ofgem published the updated default tariff cap levels for charge restriction period 11a, covering 1 October to 31 December 2023, on 25 August 20231. The dual fuel direct debit cap falls to £1,923 for a typical customer, a reduction of £151, or 7 per cent, on the previous level1. The regulator said it was applying updated inputs to formulae set by earlier decisions and was not making a policy decision1.
The cap levels by payment method, using the 2019 typical domestic consumption values, are set out in the regulator's annex1:
| Payment method | Period 10b (July 23 to Sept 23) | Period 11a (Oct 23 to Dec 23) |
|---|---|---|
| Direct debit | £2,074 | £1,923 |
| Standard credit | £2,211 | £2,052 |
| Prepayment | £2,077 | £1,949 |
| Economy 7, direct debit at 4,200 kWh | £1,400 | £1,298 |
Standard credit customers pay £129 more than direct debit customers over the period, £8 less than the previous gap, and prepayment customers pay £26 more than direct debit customers1. Ofgem attributed the prepayment figure mainly to the higher cost of serving those customers, and said an industry modification equalising unidentified gas allocation between prepayment and non-prepayment users reduces the prepayment cap by £511. A 12 month allowance for bad debt linked to additional support credit adds £9 to the prepayment cap1.
The main driver was wholesale costs, where the allowance fell from £1,051 to £950, alongside a fall in the adjustment allowance from £66 to £121. Ofgem revised the profit margin allowance to include fixed and variable elements, adding £10 to the cap, partly offset by the removal of a temporary £8 allowance, a net £2 impact1. The regulator said forward wholesale prices remain more than double historic averages and that the outlook for January to March 2024 does not currently suggest a further material reduction1.
Ofgem will publish cap figures using the 2023 typical domestic consumption values from 1 October and will reissue its letter on or shortly after that date with 2023 figures1. Under those values the direct debit cap would be £1,834, standard credit £1,959 and prepayment £1,8611. The Energy Price Guarantee remains in effect at £3,000 until April 2024, but the cap is below it, so the cap determines maximum prices for direct debit and standard credit customers on default tariffs1. Prepayment levelisation support rates will be published by the Department for Energy Security and Net Zero1.
National Energy Action estimated the new cap will leave 6.3 million UK households in fuel poverty from 1 October 2023, up from 4.5 million in October 2021, and said the figure is still around £700 more than in October 20212. Its chief executive, Adam Scorer, said:
"Any fall in the price cap is welcome but for 6.3 million households still in fuel poverty it will make precious little difference. The price cap does not protect those who simply cannot afford the cost of keeping warm."
Which? reported average unit rates from 1 October of about 6.89p per kWh for gas and 27.35p per kWh for electricity, with average daily standing charges of 29.6p for gas and 53.4p for electricity3. It said Cornwall Insight expects the cap to rise by around 1 per cent in January 20243. The End Fuel Poverty Coalition said unit costs have fallen from last winter but standing charges have risen, and that the end of the Energy Bills Support Scheme means households will not feel the reduction4. It said standard credit customers will pay about 10 per cent more than direct debit and prepayment customers this winter4.
Why it matters for households
The cap sets maximum unit rates and standing charges, not a maximum bill, so what a household pays depends on how much energy it uses1. The headline figure is calculated for a typical household on the typical domestic consumption values, which Ofgem is changing from 1 October, so the same usage will not map onto the same headline number as before1. The gap between standard credit and direct debit narrows slightly, while the prepayment premium is reduced but not removed1. Standing charges are fixed daily amounts that apply whatever a household uses, which limits how far a household can cut a bill by using less3. For a home's energy independence, the cap governs the price of grid-supplied gas and electricity but does not change how much of either a household needs; the Energy Price Guarantee remains as a backstop only if future caps rise above £3,0001.
What happens next
Ofgem will reissue its letter on or shortly after 1 October 2023 with figures using the 2023 consumption values1. The Department for Energy Security and Net Zero will publish prepayment levelisation support rates1. Prepayment levelisation support runs until 31 March 20241. The next cap period covers January to March 2024; Ofgem said the outlook does not currently suggest a further material reduction, and Which? reported a Cornwall Insight prediction of a rise of around 1 per cent1.
Sources4 cited
- Default Tariff Cap update, ofgem.gov.uk
- Ofgem confirms the typical annual energy bill will be £1,923 - National Energy Action (NEA), nea.org.uk
- Energy prices are changing: here's what it means for you - Which?, which.co.uk
- What will Ofgem's winter price cap show?, endfuelpoverty.org.uk