The price most households pay for energy will fall by 7% from April 1, driven by promised Government cuts to bills, Ofgem said.
The regulator’s price cap will drop from the current £1,758 to £1,641 – a reduction of £117 or around £10 a month for the average household using both electricity and gas.
However, the reduction is lower than the average £150 cut to bills pledged by the Chancellor in November, when she moved 75% of the cost of the Renewables Obligation from household bills onto general taxation and scrapped the Energy Company Obligation (Eco) scheme.
Analysts Cornwall Insight said the removal of green subsidies would reduce the cap by about £145 a year once VAT and pricing allowances within Ofgem’s methodology were taken into account.
The decrease has also been offset by rising network costs, which Ofgem said had increased by £66, primarily because of investments in upgrading power and gas grids.
Customers had already been advised that the cut to their bill will also depend on the size and type of household and how much energy it uses, with those who use more likely to see greater reductions.
Tim Jarvis, director general of markets at Ofgem, said: “Today’s announcement will be welcome news for many households.
“Wholesale energy prices have fallen in recent months, and we’re investing in our network to safeguard the future energy system.
“The main driver of today’s reduction is the change to policy costs announced by the Chancellor in the budget.
“Our focus at Ofgem remains on bearing down on the costs within our control, and unlocking the investment needed to support the transition to a more stable energy system over the longer term.
“We’re also seeing encouraging signs of greater engagement and competition, with switching increasing by almost 20% year on year.”
The Government has told firms that it expects the savings to be passed on in full to all customers from April 1, including those already signed up to fixed tariffs.
Prime Minister Keir Starmer said: “Energy bills are at the front of everybody’s mind and I know they’ve been too high for too long.
“I promised to bring bills down and I meant it. And today, because of the actions this Government took at the last budget, the price cap on energy bills has come down by £117.
“That means lower energy bills for millions across the country. But I know there is more to do and my Government is pulling every lever to bear down on the cost of living and protect the pound in the pockets of working people.”
Ofgem also confirmed a decision to move the costs of the Government’s separate warm home discount from standing charges – the flat rate households pay each day to have energy supplied to their homes – to the hourly unit rate of gas and electricity.
As a result, standing charges will drop by an average of £13, or 4p a day, for customers using both electricity and gas.
Citizens Advice chief executive Dame Clare Moriarty said: “A fall in energy prices is welcome but for many people bills remain stubbornly high. For millions of households this has stopped being a temporary hardship and become an ongoing threat to their financial stability.
“The divide between those who can and cannot keep their homes warm and safe demands urgent action. Too many people, particularly those with disabilities, families with children, and renters, remain trapped in cold, damp homes they cannot afford to heat.”
Dhara Vyas, the chief executive of Energy UK, which represents firms, said: “Today’s reduction in the energy price cap is a welcome first step by the Government toward providing meaningful support for households, helping make it more affordable for people to keep their homes safe, comfortable, and warm.
“While everyone should see savings on their bills from April 1, the effect of moving some policy costs off the gas and electricity unit price will be different.
“It depends on each household’s energy use, the type of building you live in, how many people live in the property, and even how the bill is paid.”
