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Winter energy bill support to cost taxpayers £630 per household

Energy Bill
Energy Bill

Winter energy bill support will cost taxpayers an estimated average £630 per household next year, according to analysis highlighting the scale of the government price guarantee.

It means the state is facing an estimated bill of £16bn to subsidise household energy bills from January to March 2023.

The Resolution Foundation, which calculated the bill, said the cost was “eye-watering” but a “price worth paying” to avoid worsening the cost-of-living crisis. Exact amounts will depend on each family's energy usage.

Shortages of gas due to Russia’s war on Ukraine have triggered soaring wholesale energy prices which are feeding through into bills.

Ofgem, the energy regulator, on Thursday set the energy price cap for the period from January to the end March at £4,279 per year, a sharp rise to reflect higher wholesale costs.

The price cap would normally determine what households pay. However, the Government has decided to subsidise bills so that typical households are paying no more than £2,500, known as the energy price guarantee.

The state is paying suppliers the difference between the price cap rate and the subsidised rate. The January price cap rate would imply costs for the state of £1,779 per household over the year, although in reality the level of the price cap will change.

The cost is not stretched equally across the year, however, as energy usage is highest in the winter months.

The Resolution Foundation said: “The energy price guarantee is set to save a typical energy bill payer around £630 between January and March next year.

“High energy use during the winter months – 45 per cent of annual household gas use takes place in the first quarter of the year – means that it is this period when the benefits (and costs) of the energy price guarantee are highest.”

Support for energy bills will be scaled back next year, Jeremy Hunt has announced, with the level of the energy price guarantee rising from £2,500 to £3,000.

However, analysts at Cornwall Insight believe the measure will cost £42bn over its 18 months, up from a previous estimate of £38bn.

Craig Lowrey, principal consultant at Cornwall Insight, said: “With so many households struggling to pay their bills, it is essential that support is made available, however it is clear that the energy price guarantee is not a desirable long-term solution.”

The National Grid and some energy firm are paying customers to turn off their gas and electricity at peak times of the day to save supplies.

Octopus Energy paid households £525,000 for two trial sessions, with most customers given £1 to switch off for an hour and the top 5pc receiving £4.77.

The amount of energy saved was enough to power all of the homes in Leicester for one hour.

A spokesman for the Department for Business, Energy and Industrial Strategy, said: “The Energy Price Guarantee is protecting consumers from soaring energy costs, meaning people’s bills will not rise in line with today’s Ofgem energy price cap increase.”