Ofgem published the updated default tariff cap levels for charge restriction period 11b on 23 November 2023, covering the three months from 1 January to 31 March 20241. The dual fuel direct debit cap rises to £1,928 for a typical customer, an increase of £94, or 5%, on the 1 October to 31 December 2023 level of £1,8341. The regulator said it was obliged to update the cap by applying updated inputs, such as wholesale costs, to formulae set by previous decisions, and that in doing so it was "not making a policy decision or exercising a judgment"1.
The cap levels by payment method and meter type are set out below1.
| Cap level | 1 Oct to 31 Dec 2023 | 1 Jan to 31 Mar 2024 |
|---|---|---|
| Direct debit | £1,834 | £1,928 |
| Standard credit | £1,959 | £2,058 |
| Prepayment | £1,861 | £1,960 |
| Economy 7 (direct debit, 3,900 kWh) | £1,219 | £1,272 |
Standard credit rises by £99 to £2,058, and customers paying by cash or cheque will pay £130 more than those on direct debit over the period1. The prepayment cap rises by £99 to £1,960, which is £32 above the direct debit level, primarily reflecting higher supplier costs to serve those customers1. For electricity only Economy 7 customers, the direct debit cap rises to £1,272, standard credit to £1,352 and prepayment to £1,2831.
The wholesale cost allowance in the direct debit cap increased from £898 to £9851. Ofgem attributed the change to wholesale price rises in August and early September on concerns about prolonged Norwegian gas outages and possible strikes at Australian gas export facilities, followed by damage to a gas interconnector in the Baltic Sea and the outbreak of conflict in the Middle East in October1. It said prices remain much lower than the record highs of 2022 but that the wholesale gas market remains volatile1. All other cap components stayed at October 2023 levels, with payment uplift, EBIT and headroom updating because they scale with the cap level1.
Ofgem's chief executive Jonathan Brearley said:
"This is a difficult time for many people, and any increase in bills will be worrying. But this rise, around the levels we saw in August, is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay."
The cap level remains below the Energy Price Guarantee, so the cap, not the guarantee, sets the maximum price for direct debit and standard credit customers on default tariffs from 1 January to 31 March 20241. Prepayment customers continue to receive Energy Price Guarantee support to address the cost differential until 31 March 2024, with the levelisation support rates to be published by the Department for Energy Security and Net Zero1.
Ofgem also published a statutory consultation on levelling standing charges so prepayment and direct debit customers pay the same daily charge2. Under the proposal, prepayment customers would save around £50 a year, standard credit bills would fall by around £45 a year, and direct debit customers would pay around £20 a year more2. A separate call for input on standing charges runs until 19 January 20242.
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 figures above are for a typical household under the 2023 Typical Domestic Consumption Values: 2,700 kWh of electricity, 11,500 kWh of gas and 3,900 kWh for multi-register meters such as Economy 71. A household using more than the typical amount pays more than the headline figure.
The gap between payment methods is the practical point. Standard credit costs £130 a year more than direct debit for the same typical consumption, and prepayment £32 more1. For a household trying to hold down its energy costs without changing how much it uses, the payment method is one of the few variables it controls, alongside the choice between a fixed tariff and remaining on the cap. Ofgem said it is "seeing the return of choice to the market", with fixed-rate and flexible deals available, including some tracking below the cap2.
The standing charge consultation matters because standing charges are paid regardless of usage, so they bear on the fixed part of a bill that a household cannot reduce by using less. The proposal would shift costs between payment groups rather than remove them2.
What happens next
The next quarterly price cap announcement is due in February 2024, covering April to June 20242. The call for input on standing charges closes on 19 January 20242. Energy Price Guarantee prepayment levelisation support runs until 31 March 2024, with rates to be published by the Department for Energy Security and Net Zero1.
Sources3 cited
- Default Tariff Cap update, ofgem.gov.uk
- Energy Price Cap 2024 and the Wider Conversation, epvs.co.uk
- Energy Price Cap 2024 and the Wider Conversation, flexi-orb.com