The energy regulator is poised to announce a significant cut to its price cap this week, with household bills for a typical home set to fall by over a hundred pounds from April. Predictions suggest Ofgem will lower the cap by £117 to £1,641 a year for a typical dual-fuel household from April 1, a reduction of 7% from the current £1,758 level.
This anticipated drop, however, is not being driven by a sustained fall in wholesale energy prices. Instead, analysts point to deliberate government policy changes designed to shift certain levies away from consumer bills. Chancellor Rachel Reeves pledged last November to cut £150 from the average household energy bill, a figure that is now being realised through structural reforms.
Policy shifts reshape the energy bill
The government is achieving its promised discount primarily through two major changes. First, 75% of the costs associated with the Renewables Obligation (RO) will be moved from household energy bills into general taxation. The RO scheme, launched in 2002 to support large-scale renewable electricity generation, had been adding approximately 3p per kilowatt hour (kWh) to domestic electricity bills.
Second, the Energy Company Obligation (ECO) scheme will not be extended beyond March 2026. This programme, which has seen several iterations since its introduction, obligated suppliers to fund energy efficiency improvements for low-income households to tackle fuel poverty. Its cessation is expected to save the typical household around £60 per year. The decision follows a National Audit Office report in October 2025 that highlighted serious failings in the ECO scheme and related insulation programmes.
Industry analyst Cornwall Insight has said these policy changes are likely to reduce the headline price cap by about £145 a year once VAT and other pricing allowances are taken into account. It noted, however, that increases in costs associated with the operation and maintenance of gas and electricity networks, which are paid for from customer bills, have offset part of these savings.
How the cut will reach your meter
Consumers will not see a one-off £150 credit on their account. The reduction will be applied via lower unit rates, with the main benefit felt in electricity costs. The unit rate for electricity is expected to fall by around 3.37p per kWh from the previous quarter, a decrease of 15% from the first quarter of 2026. Gas unit prices are forecast to see a smaller drop of around 7%.
The £150 figure quoted by the Chancellor is an average, and actual savings will vary significantly based on household size, type, and energy consumption. The government’s discount is expected to disproportionately benefit those with the largest bills, with one in four households potentially saving over £200. It is crucial to note that the headline price cap figure is based on Ofgem’s updated Typical Domestic Consumption Values (TDCV), which estimate annual use at 2,700 kWh for electricity and 11,500 kWh for gas. The cap does not limit a home’s total bill, as customers pay for exactly what they use.
Households should look out for information from their suppliers after Wednesday’s formal announcement, paying close attention to the new unit rates and daily standing charges, which cover the cost of being connected to the grid.
To switch or to wait?
The impending changes have created a complex landscape for consumers considering a fixed tariff. The End Fuel Poverty Coalition has warned that the situation could make switching “even more difficult to gauge,” as some new fixed tariffs will include the announced cuts while others may not. It said households may prefer to wait for the dust to settle on Wednesday’s announcement before committing to a new deal.
Consumer group Which? advises that it is always worth investigating fixed deals, recommending that consumers look for contracts cheaper than the price cap, not longer than 12 months, and without significant exit fees. The key, it stresses, is to compare the actual gas and electricity unit rates and standing charges, rather than relying on headline “average bill” figures.
A steady outlook with a looming cliff edge
Looking ahead, Cornwall Insight currently expects the price cap to remain relatively steady throughout the rest of 2026, with a small further fall forecast in July. These predictions remain subject to change based on wholesale market movements—which have seen some volatility in early 2026 due to geopolitical factors—and future policy announcements.
The Resolution Foundation suggests the typical energy bill in 2026 is expected to be around £1,645, over £200 lower in real terms than in 2024. However, this period of relief may be time-limited. The government’s bill discount, facilitated by the shift of RO costs and the end of ECO, is set to expire by 2029, a point which could lead to rising bills unless the policies are extended or replaced.
Ofgem, which regulates energy in England, Scotland, and Wales, reviews and updates the price cap every three months. The next announcement, setting the level for the April to June 2026 period, is scheduled for February 25.
