Ofgem’s 7 Percent Energy Price Drop Isn’t a Win for Consumers: Experts

Critics say the energy price cap is no longer protecting consumers, calling for urgent market and welfare reform.

A woman looking at an energy bill in an undated file photo. Danny Lawson/PA

A 7 percent reduction in energy prices announced by Ofgem simply restores prices to where they were at the beginning of the year, leaving energy bills higher than they were 12 months ago, experts have warned.

From July to Sept. 30, the typical household paying by Direct Debit will save £11 a month, the regulator said on Friday.

Prime Minister Sir Keir Starmer described the announcement on social media platform X as “welcome news, saving money for working families and businesses.”

He added that the government is going “further and faster to tackle the cost of living crisis and put more money back in your pocket.”

The energy price cap went up 10 percent in October 2024, 1.2 percent in January, and 6.4 percent in April. Consumer advocates argue that the latest reduction merely cancels out the most recent hike.

“Today’s announcement that the price cap is to fall by 7 percent, is welcome, but nothing to shout home about. All this really does is reverse April’s rise so it’s back to roughly the cost at the start of the year,” said founder of Money Expert, Martin Lewis on X.

Is the Price Cap Still Doing Its Job?

The energy price cap was originally designed as a protective backstop for consumers who were unable or unwilling to switch tariffs.

Over time, however, it has become the standard pricing mechanism for more than 22 million customers.

Lewis criticised this development, arguing that the cap lags behind fixed deals available in the market.

“Compare these falls to the cheapest fixes on the market today, which are 18 percent below the current cap, showing the price cap is a pants cap,” he said.

Consumer groups such as Uswitch said that cheapest fixed deal could save the average household £203 a year compared with Ofgem’s £129 figure.

“For households still sitting on a standard tariff linked to the price cap, now is a great moment to lock in fixed savings before the winter gloom returns,” said Richard Neudegg, director of regulation at Uswitch.

Which? also encouraged customers on fixed deals that are now more expensive than the new cap to check for exit fees and consider switching if their current plan allows.

Price Fluctuations

The cap reduction reflects a fall in the international price of wholesale gas, explained the regulator’s Director General Tim Jarvis.

Ofgem also noted that lower supplier business costs have contributed to the reduction in energy prices.

Global energy prices surged following the start of the war in Ukraine, leading to sharp increases for consumers.

The first major impact on UK customers on standard variable tariffs came in April 2022, when the energy price cap rose by 54 percent.

Although prices have since eased slightly, they remain well above pre-war levels.

Gas prices have nearly doubled, rising by an estimated 80 to 110 percent, while electricity prices are up by approximately 25 to 40 percent.

“In the longer term, we need an energy system where prices are insulated from the volatile international gas market, and which ensures more stable prices and energy security,” said Jarvis.

Energy regulator Ofgem's sign in an undated file photo. Yui Mok/PA

Criticism of the Regulatory System

The wider energy regulatory framework is also under growing scrutiny.

Citizens Advice, the national network of charities, has warned that nearly 7 million people in the UK are living in households that have fallen behind on their energy bills.

“Today’s announcement will be cold comfort to the millions paying off a mountain of debt on top of their monthly costs,” said the organisation’s chief executive, Dame Clare Moriarty.

A recent report by the charity found that energy network companies—responsible for delivering gas and electricity to homes through pipes and cables—have made almost £4 billion in excess profits over the past four years.

In response, the Energy Networks Association (ENA) said Britain has one of the most reliable grids and called the report “overly simplistic.”

The ENA said the analysis ignored long-term investment plans, including over £100 billion due to be spent between 2021 and 2031. They also stressed the importance of a stable regulatory system.

Moriarty urged ministers to provide more targeted support with energy bills, particularly for pensioners affected by cuts to the winter fuel payments (WFPs).

Trade unions have also raised concerns about the role of Ofgem and the structure of the market itself.

Unite General Secretary Sharon Graham said the regulator had lost public trust and accused it of allowing multinational companies to make excessive profits. She called for urgent reform to address what she described as deep-rooted problems in the energy system.

“We urgently need to reverse the market madness and address the real causes of the lingering energy crisis,” she said.

Little Relief for Older Households

Pensioners in particular may see little benefit from the cap reduction. According to the End Fuel Poverty Coalition, more than 3 million pensioner households face unaffordable energy bills.

Nearly a million of these are in deep fuel poverty, meaning they spend more than 20 percent of their income on energy.

Until 2024, all pensioners could receive a WFP of £200 a year, or £300 if someone in the household was over 80. It was paid regardless of income or savings, but cuts to the benefit meant that it would only go to low-income pensioners.

The WFP has not increased since 2000 and in real terms its value has halved. The average summer energy bill now consumes more than 60 percent of the standard £200 WFP.

This week, in what appeared to be a policy shift, Starmer said the government aims to expand eligibility for WFPs.

Speaking during Prime Minister’s Questions, he acknowledged the ongoing cost pressures facing pensioners.

“As the economy improves, we want to make sure people feel those improvements in their days as their lives go forward. That is why we want to ensure that, as we go forward, more pensioners are eligible for winter fuel payments.”

He said the government will “only make decisions we can afford” and will therefore look at this as part of a fiscal event.