The energy price guarantee, which has capped the typical energy bills of an average household at £2,500 a year, was due to end this month but has been extended today as part of chancellor Jeremy Hunt’s Spring Budget.
The support will be maintained at the same level over April to June of this year, meaning that households will not be exposed to Ofgem’s price cap which currently stands at £3,280.
From July, lower wholesale gas prices are expected to feed through to lower household energy bills with data from Cornwall Insight estimating that the Ofgem price cap will drop to £2,100 a year for a typical household as a result.
“This temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too,” Hunt said.
The extension will cost the government £4bn.
From July, the government’s energy price guarantee will revert to £3,000 until the end of March 2024.
Households will from July pay whichever is lower, the government’s £3,000 price guarantee or the Ofgem price gap.
Commenting on the government's decision, Myron Jobson senior personal finance analyst at Interactive Investor said: “Low-income households are particularly exposed to hikes in energy bills as they spend a higher proportion of their budget on essentials.
"Our research found that the poorest 10 per cent of households face spending 26 per cent of their budget on energy bills from April if the EPG rose as originally planned to £3,000 for a typical household, or up to 37 per cent of their budget if they have a big household or live in a larger home.
"This is up from the current levels of 16 per cent for poorer households in an average-sized house and 25 per cent for low-income households in a larger home.
“Any measures to help support consumers through the cost-of-living storm is welcome. But the fact remains that individuals will have to do most of the heavy lifting to fortify their finances.”
Elsewhere, Hunt announced plans to help support the 4mn households on prepayment metres.
A ban on the forced installation of prepayment metres by energy companies has been extended beyond the end of March has previously been confirmed.
Adding to this, Hunt announced today that prepayment metre rates will be brought in line with comparable direct debit charges.
This marks the “energy premium paid by poorest households is coming to an end”, Hunt said.