Jeremy Hunt is set to extend the Government’s £2,500 energy price guarantee until the summer to help hard-pressed households. The Chancellor wants to soften the impact of hikes in bills, which are due to increase next month.
At the moment, the energy price guarantee limits gas and electricity tariffs so a typical household charge is no more than £2,500 a year.
But that ceiling was due to rise to £3,000 from April.
Instead, Mr Hunt will retain the guarantee for three more months until wholesale prices have fallen so far that it becomes unnecessary.
He has told energy firms to prepare for the price guarantee to remain in place, costing the Government about £3billion.
A Treasury spokesman insisted yesterday no decision had been made. However, a Whitehall source confirmed the guarantee was now expected to stay at £2,500.
They said: “Energy suppliers have been asked to prepare to keep things at £2,500.”
It had been feared those unable to afford energy would have doubled from one in 10 to one in five if the guarantee cap had risen.
Under the scheme, the taxpayer subsidises bills to shield households from costs they would otherwise have faced under the price cap set by Ofgem.
Without the guarantee, the typical household bill would be £4,279 a year under the current Ofgem price cap, which is based on suppliers’ costs.
But wholesale energy prices have fallen significantly in recent months and Ofgem expects its price cap to drop to £3,280 a year from April.
And the Government is “pretty confident” the cap will fall further, to below £2,500 from July.
Money Saving Expert Martin Lewis told the Today programme on Radio 4 yesterday: “I was saying earlier in the week, reading the runes, it was a better than 50 per cent chance that the price wouldn’t go up.
“I’m hearing they have not been told that the rate is staying. They have been told that there is an attempt to keep the rate at £2,500.
“So we’re not at the smoking-gun stage that this is definitely happening, but I would say we’re at an 85 percent likelihood that the price won’t be going up.”
The Institute for Fiscal Studies forecast that the Treasury could afford to keep support at current levels until the summer as wholesale prices fall sharply – meaning the scheme’s cost would be cut.
Paul Johnson, director of the economics research body, said recently it would be “very straightforward” for ministers to stop bills rising next month because of lower-than-expected borrowing this year.
He said: “Because it’s relatively cheap and politically popular, I wouldn’t be surprised if something like that happened.”
However, many people still face a significant rise in their expenditure as the Government’s universal £400 energy subsidy comes to an end in April.
But eight million households on means-tested benefits will get £900 cost-of-living payments from next month, with pensioner households receiving £300.
Universal Credit and the state pension will rise by 10 percent from April and the national living wage will go up by a record 9.7 percent for workers over 23. The boost comes after Ofgem said earlier this week that energy bills could start falling this summer if wholesale prices continue to plunge.
Both wholesale gas and electricity costs have started to tumble this year after spiking dramatically in 2022 in the wake of Russia invading Ukraine.
Jonathan Brearley, the chief executive of Ofgem, said there were signs pressure on energy markets was “starting to ease” but warned a return to pre-crisis levels was unlikely.
He added: “If the reduction in wholesale prices we’re currently seeing continues, the signs are positive the price cap will fall again in the summer, potentially bringing bills significantly lower.”
In a further boost, the Bank of England’s chief economist said the economy is “stronger than expected”.
Huw Pill said that recent data showed momentum is growing as the UK seeks to avoid a recession.
He said: “Survey indicators that have become available since the publication of the forecast have surprised to the upside, suggesting that the current momentum in economic activity may be slightly stronger than anticipated.”
Preliminary February purchasing managers’ index (PMI) data released last week unexpectedly rose into growth territory for the first time since last July.
And Bank Governor Andrew Bailey said in a speech earlier this week that it was possible the Bank may not need to raise rates further.
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