Ofgem published an updated default tariff cap letter on 1 October 2023, restating the cap levels for charge restriction period 11a, which covers 1 October to 31 December 2023, using the 2023 Typical Domestic Consumption Values that took effect the same day1. The regulator said it had revised the EBIT (profit margin) allowance within the price cap methodology, so that it now includes both a fixed and variable element and is less sensitive to overall cap levels1.
The revised allowance adds £6 to the upcoming cap level, Ofgem said, partly offset by the removal of a temporary £7 allowance for RO ringfencing costs, which are now incorporated within EBIT. That gives a £2 net impact for the October to December cap on an annualised basis1. In its 25 August 2023 letter, Ofgem had put the EBIT addition at £10 and the offsetting temporary allowance at £8, also producing a £2 net impact2.
"We have revised the EBIT (profit margin) allowance within the price cap methodology. The revised methodology includes both a fixed and variable element and is less sensitive to overall cap levels, better protecting consumers in the event of high prices."
The 1 October letter restates the cap levels on the 2023 consumption values of 2,700 kWh of electricity, 11,500 kWh of gas and 3,900 kWh of electricity for Economy 7, replacing the 2019 values of 2,900 kWh, 12,000 kWh and 4,200 kWh1. Ofgem said the change in consumption values does not itself affect consumer bills, and that the rates for October to December, including unit rates and standing charges, are unchanged from the 25 August announcement1.
| Cap level, dual fuel | July to Sept 2023 | Oct to Dec 2023 |
|---|---|---|
| Direct debit | £1,976 | £1,834 |
| Standard credit | £2,108 | £1,959 |
| Prepayment | £1,982 | £1,861 |
| Economy 7, direct debit | £1,314 | £1,219 |
Source: Ofgem, 1 October 2023, 2023 consumption values1. The same letter gives the direct debit figure as a reduction of £142, or 7 per cent, on the previous level1.
Ofgem attributed the change mainly to the wholesale cost allowance falling from £994 to £898 and the adjustment allowance falling from £62 to £11, as costs allowed for last year's wholesale price rise have been fully recovered1. It said forward wholesale prices remain more than double historic averages and the outlook for January to March 2024 does not currently suggest a further material reduction, though this remains uncertain1. The cap remains below the Energy Price Guarantee, which stays in effect at £3,000 until April 20241.
Why it matters for households
The cap sets maximum unit prices and standing charges, not a maximum bill, so what a household pays depends on how much energy it uses1. The profit margin element is one of the smaller components of the cap, and the net effect of the EBIT change on the October to December level is £2 on an annualised basis1. The larger movements come from wholesale costs and the falling away of the adjustment allowance1. The reissued figures also mean the headline "typical household" number is now calculated on lower assumed consumption, so comparisons with earlier announcements need care; the typical household figure is a benchmark, not a prediction for any one home.
What happens next
The cap levels run to 31 December 20231. Ofgem said the outlook for the January to March 2024 period does not currently suggest a further material reduction in costs, though this remains uncertain1. The Energy Price Guarantee remains in effect at £3,000 until April 2024, and prepayment meter levelisation support rates are to be published by the Department for Energy Security and Net Zero1.
Sources2 cited
- Default Tariff Cap update, ofgem.gov.uk
- Default Tariff Cap update, ofgem.gov.uk