UK suppliers expect government U-turn on planned cut to energy bill support

Britain’s energy suppliers are expecting the government to U-turn on a planned cut to energy support for households – but have been told by officials in the meantime to prepare two sets of bills for next month.

The chancellor, Jeremy Hunt, is under pressure to keep the energy price guarantee at its current level of support – which limits the typical annual household bill to £2,500 – beyond the end of March.

Hunt, who is due to announce the budget on 15 March, had planned to make the guarantee less generous from April, raising it to £3,000. One-off support of £400 that was available over the winter is also due to end on 1 April.

Campaigners have warned the price increase, if left unchecked, will plunge many thousands more families into poverty.

Energy suppliers have been contacted by government officials with two sets of rates for units of gas and electricity – depending on whether Hunt decides to extend the current level of support.

One energy chief executive said: “We have effectively loaded two sets of rates into our systems to test the billing and make sure the direct debits are correctly calculated. We’ve been told everything is leaning toward [remaining at] £2,500.”

The government has not confirmed the U-turn but the Times reported on Friday that a Whitehall source said Hunt would cap bills at £2,500 for another three months, until July. The wholesale energy market is already betting prices will fall to more affordable levels over the summer.

Treasury sources confirmed that suppliers had been asked to prepare for either decision.

Suppliers are expected to give customers a month’s notice before changing their tariff, meaning if Hunt waits until the budget to make a decision it could cause problems by leaving only two weeks before the 1 April deadline.

However, industry sources said the regulator for Great Britain, Ofgem, has “given us some leeway on dates. If a decision doesn’t come until mid-March, that will be a challenge but the dates are not hard and fast and we understand the regulator would allow that.”

Pressure has been mounting on Hunt to reverse the planned cut to support since wholesale gas prices began falling sharply earlier this year. Russia’s decision to stop supplying gas to Europe pushed up bills, forcing the UK government to intervene.

The consumer champion Martin Lewis, who has been campaigning for Hunt to reverse his decision, said on Friday there was an 85% chance that the government would bow to pressure. “I wouldn’t say it’s a done deal,” he added.

The energy secretary, Grant Shapps, said this week he was “very sympathetic” to calls for the government to cancel the planned cut in support.

On Friday, Michael Lewis, the chief executive of E.ON in the UK, called for a swift decision from Hunt. “On behalf of all customers I’d strongly urge the government to continue supporting lower bills and to announce that decision as soon as possible in order to avoid further confusion and distress for customers around whether bills will go up drastically again from April,” he said.

On Monday, Ofgem announced a reduction in the quarterly price cap to £3,280 from April – down from £4,279.

Households will not actually pay this figure. As long as the level of the price guarantee is lower than the Ofgem price cap, the government will pay suppliers the difference to cover the cost of buying wholesale energy at prices that have been inflated by the war in Ukraine.

Analysts at Cornwall Insight say extending help would cost the taxpayer less than £3bn extra. A U-turn by Hunt would bring the government bill for the energy price guarantee to £29.4bn. However, falling gas and electricity prices mean the government has already made a saving – the scheme was forecast to cost £37bn in January.

Paul Johnson, the director of the Institute for Fiscal Studies, has said Hunt could “very easily” afford to extend the guarantee at the current level for three months “to cushion people over the first part of the next fiscal year” after receiving a surprise £5.4bn surplus in the government budget in January.

Government figures this week also showed that more than 2 million households in England fell into fuel poverty last year.