Household energy costs in 2023/24

Executive Summary

• Falling energy prices and the government’s decision to keep the Energy Price Guarantee at £2,500 between April and June are a welcome relief for many households. However, while less bad than feared, prices at £2,000–£2,500 are much higher than historic norms and many households are still expected to pay higher energy bills in 2023/24 than in 2022/23.
• We estimate a median-usage household will pay £135 more in the 2023/24 financial year compared to 2022/23, as an annual bill rises from £1,983 to £2,118. The increase occurs because while prices are lower, the fall is not enough to make up for the ending of the £400 Energy Bill Support Scheme (EBSS).
• Low-income consumers will see even larger overall bill increases. We estimate that the average household in the lowest 10% of incomes will pay £209 more in 2023/24 than in 2022/23. This loss is greater than that for median-usage households because their lower energy usage means the gain from lower prices is smaller, but the loss of the £400 EBSS is the same.
• The government lacks an effective mechanism to target financial support for energy bills so it faces a continued dilemma of either targeting support using means-tested benefits and leaving needy non-recipients unsupported or giving out expensive universal payments that subsidise some consumers unnecessarily. The government should introduce a social tariff along the lines of that proposed by Citizens Advice as soon as possible.

Introduction

In the Spring Budget 2023, the Chancellor of the Exchequer announced that the Energy Price Guarantee will be kept at £2,500 for an average household between April and June, instead of increasing to £3,000. From July, industry forecasters expect that the Ofgem price cap will fall below £2,500 for the remainder of the year. The picture looks a lot better for consumers than we expected just a few months ago, when the outlook for wholesale energy prices was much higher and the government could only commit to keeping the average household bill at £3,000. 

Nonetheless, while less bad than feared, prices at £2,000–£2,500 are much higher than historic norms. Between October 2018 and March 2022, the Ofgem price cap was consistently around half or less than the £2,500 EPG, while even cheaper competitive tariffs were widely available. For the foreseeable future, energy is still set to be much more expensive than it used to be.

The Energy Bill Support Scheme (EBSS) has also ended. This scheme gave all consumers £400 off their bills between October 2022 and March 2023, through a series of monthly payments via direct debit reductions, credits or vouchers. The Chancellor did not announce a repeat of the scheme next winter in the Spring 2023 budget. 

Where does that leave the outlook for consumer bills over the coming year? This briefing note sets out how much consumers are expected to pay over the next 12 months in comparison to the previous 12 months, taking into account prices, consumption and levels of government support. Instead of just focusing on the annualised price cap figures, we examine energy costs on a monthly basis by combining price forecasts with consumption data from UCL’s Smart Energy Research Lab. This gives us more insight into how consumption varies across the year – an important factor when prices vary on a quarterly basis, and when support like the EBSS is not provided year-round. 

We also estimate bills for low-income consumers over the next year. We know that pressures for those on low incomes are especially acute and that they have faced a higher rate of inflation than other consumers during the cost of living crisis. Many consumers on low incomes are already taking drastic steps to deal with cost of living pressures like eating fewer meals or not heating their homes adequately. Energy costs make up a much larger proportion of total spending for households on low incomes and therefore it is vital to understand what bills they may face over the next year. 

You can access our complete library of data to understand the challenges facing consumers from our consumer data hub.

The outlook for bills in 2023/24

Our analysis suggests that, once the EBSS is taken into account, energy bills for households will be higher in 2023/24 compared to 2022/23. In total we expect a median-usage household will pay £135 more in the 2023/24 financial year compared to 2022/23, as an annual bill rises from £1,983 to £2,118.

This is being driven by two factors across the course of the next year: 

• In April–September 2023, energy prices will be higher than they were a year before, even with the energy price guarantee extended at its current level for another three months. A median-usage consumer will pay £111 more during these six months than in April - September 2022, with most of that expense coming in April - June.
• In October 2023–March 2024, prices are expected to be lower than now, but this fall in prices will not be quite enough to offset the EBSS discount every household received over that period the year before. A median-usage consumer will pay £23 more during these six months than in October 2022 - March 2023.  

Low-income consumers

Low-income consumers also face higher bills in the next year and will actually see larger overall bill increases than average. We estimate that the average household in the lowest 10% of incomes will pay £209 more in 2023/24 than in 2022/23. 

This increase is estimated to be £75 more than that faced by median-usage consumers. The larger increase in bills compared to other households is because overall levels of energy usage are lower on average for those on lower incomes. Lower consumption means the benefit from lower prices (i.e. the price paid per unit consumed) from October onwards is smaller for those on lower incomes, but the loss of £400 from the end of the EBSS is the same for everyone. We can see this in the data as the households in the bottom income decile, ie those with the lowest 10% of incomes, face higher bills in every month from October 2023–March 2024. 

To take an example, we estimate that a typical dual fuel consumer in the bottom 10% of incomes would have incurred £156 in energy charges in October 2022, but only have paid £90 due to the £66 discount provided by the EBSS. In December 2023, we expect the same consumer to incur £123 in energy charges, but not receive any discount. Therefore, the total bill will be £33 (£123– £90) higher in October 2023 than in October 2022. 

We have also examined the outlook for bills for one of Ofgem’s ‘consumer archetypes’. These were developed by the regulator and the Centre for Sustainable Energy to help consider the potential impacts of policy changes on different types of consumers. One of these archetypes, ‘D6’, has a greater likelihood of having many characteristics of financial vulnerability, including: low income, disability, fuel debt, having a prepayment meter, being disengaged, living in social housing, BME households, single parents. We predict that costs will be £119 higher in 2023/24 for this archetype. 

Concerningly, the overall level of bills for these consumers is also high, owing to higher levels of consumption too. The average D6 consumer would be paying £2,418 next year, compared to £2,299 over the last 12 months. 

The higher costs are likely to pose particular difficulties for households on prepayment meters, who are typically on lower incomes and cannot spread costs across the year. This may pose problems in the winter months where consumption and therefore bills are higher. This is concerning for a group of consumers who face disconnection if they can’t top up their meters. 

Conclusion and implications

Energy bills in 2022/23 were already at record highs, having roughly doubled from that of recent years. Prices will begin falling from July 2023, but even so will remain much higher than historic standards. Looking across 2023/24, our analysis suggests consumers will actually face higher bills than 2022/23, once both prices and bill support are taken into account. The year-on-year bill increase will be greater for those on the lowest incomes, as they see less benefit from lower prices but lose out from the removal of the EBSS.

Our analysis raises particular concerns for the 2023/24 winter, where consumers on the lowest incomes will face considerably higher monthly bills, and the absence of an EBSS scheme will be felt in consumers’ pockets. We know that many of these consumers have already been struggling, and an additional £209 of costs across the year will be difficult for many to manage. Unfortunately, there is currently no indication that the government will have a wholly effective means of targeting financial support in time for the coming winter. So far, the government has provided Cost of Living payments to households on qualifying benefits and it will do so again in the coming year. These payments will provide some welcome relief to those eligible, but the targeting mechanism misses far too many low income consumers who do not receive benefits. Citizens Advice and SMF have estimated that just 45% of consumers in the poorest 10% of households claim means-tested and disability benefits.

Without the ability to target support at those who need it, and with prices expected to remain high for the foreseeable future, the government has left itself with the same painful dilemma as last year. It can continue to target support at consumers on means-tested benefits and leave unsupported a significant number of struggling households not on benefits – or give out universal payments, like the EPG or EBSS, and subsidise consumers who don’t need it at huge expense to the taxpayer. Our analysis suggests this issue will be even more acute over the next year, as low income consumers benefit less from falling (but still very high) prices and so feel the pain of the removal of the universal EBSS more. Given the hardship that many households have suffered this winter, with one in five people saying they have often suffered physical discomfort because they have put their heating on less due to high prices, then the government may need to once again provide financial support to households in the autumn and winter of 2023/24.

However, a properly targeted social tariff is desperately needed to ensure energy affordability for the foreseeable future. Recent Citizens Advice proposals have shown how a social tariff could be designed that would effectively target support to those who need it. This would be based on both household income and energy usage, without creating a cliff-edge based on benefits eligibility. The proposal also has the merits that it uses household income and not individual income, it would be paid automatically, and it maintains incentives to reduce usage.  

Which? recommends that the government should introduce a social tariff along the lines of that proposed by Citizens Advice as soon as possible. The 2022 Autumn Statement committed to having a new ‘approach to consumer protection’, like a social tariff, in place by April 2024. Progress needs to be made as a matter of urgency.