Ofgem published updated default tariff cap levels on 25 August 2023 for charge restriction period 11a, covering 1 October to 31 December 20231. Within that update, the regulator changed the energy price cap methodology to account for UNC mod 840, an industry modification equalising the Unidentified Gas allocation between pre-pay and non-prepay End User Categories1. Ofgem states this "reduces the prepayment cap level by £51"1.
The same letter records a related decision: "we have decided to introduce a 12 month allowance from 1 October for bad debt associated with ASC provided to prepayment customers"1. Ofgem says this adds £9 to the cap level for prepayment customers, using some of the benefit from the UNC mod 840 change, and describes it as "an important intervention to help ensure prepayment meter customers can access the right level of ASC support this winter"1.
The net effect sits inside a wider reduction. The prepayment meter cap level falls to £1,949 for cap period 11a, a £129 (6%) decrease on the previous period, and stands £26 above the direct debit level of £1,9231. Ofgem attributes that gap primarily to the higher cost for suppliers to serve prepayment customers compared with direct debit1. Standard credit falls to £2,052, a £159 (7%) decrease, and is £129 above direct debit1.
| Cap level (current TDCV) | Period 10b (Jul to Sep 23) | Period 11a (Oct to Dec 23) |
|---|---|---|
| Direct Debit | £2,074 | £1,923 |
| Standard Credit | £2,211 | £2,052 |
| Prepayment | £2,077 | £1,949 |
| Economy 7 (DD at 4,200 kWh) | £1,400 | £1,298 |
Ofgem also revised the EBIT (profit margin) allowance, adding £10 to the cap level, partially offset by a previous temporary £8 allowance for RO ringfencing costs, giving a £2 net impact for October to December1. The adjustment allowance fell from £66 to £12, and the wholesale cost allowance from £1,051 to £9501. Ofgem notes 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 reduction in costs, though this remains uncertain"1.
Why it matters for households
The £51 reduction applies to the prepayment cap level specifically, so it changes the maximum a supplier can charge a prepayment customer on a default tariff, not the amount any individual household pays, which depends on usage1. The £9 bad debt allowance works in the opposite direction on the same cap, so the two decisions partly cancel. The gap between prepayment and direct debit narrows but does not close: prepayment remains £26 above direct debit for a typical dual fuel customer1. The cap sets maximum unit rates and standing charges, not maximum bills1.
What happens next
Ofgem says it will reissue the letter on or shortly after 1 October 2023, updated with 2023 figures, as cap levels move to the 2023 Typical Domestic Consumption Values from that date1. Under those values the prepayment cap level is shown as £1,861 and direct debit as £1,8341. The Energy Price Guarantee remains in effect at £3,000 until April 2024, and prepayment customers continue to receive EPG levelisation support until 31 March 2024, with rates to be published by the Department for Energy Security and Net Zero1.
Sources1 cited
- Default Tariff Cap update, ofgem.gov.uk