Energy bills will fall by around 7 per cent from April for a typical household following a shake-up in charges by the government.
Ofgem has announced it will reduce the energy price cap by £117 to £1,641 a year for a typical dual fuel household from April 1.
The energy regulator said the change to the energy price cap amounted to a reduction of around £10 a month for the average household using both electricity and gas.
Ms Reeves had promised a reduction of £150 in energy bills when she revealed last November that the Energy Company Obligation would be scrapped.
Today’s level means the cap is more than £200 lower than a year ago, reflecting the Government’s decision to take £150 in policy costs off energy bills, the regulator said.
The 7 per cent fall is largely driven by policy measures announced by Ms Reeves in November’s Autumn Budget.
These included shifting 75 per cent of the Renewables Obligation costs from household energy bills into general taxation, and the decision not to extend the Energy Company Obligation (ECO) beyond March 2026.
Customers have been warned not to expect a straight discount on their bills, and that the cut will depend on the size and type of household and how much energy it uses.
Lower bills: Millions of households are on track to see their energy bills fall in April
The reduction is expected to be primarily applied through a lower price per unit of electricity used, with households advised to look out for information from their supplier explaining this after the price cap announcement.
Tim Jarvis, director general of markets at Ofgem, said: ‘Today’s announcement will be welcome news for many households.
‘Wholesale energy prices have fallen in recent months, and we’re investing in our network to safeguard the future energy system.
‘The main driver of today’s reduction is the change to policy costs announced by the Chancellor in the budget.
‘Our focus at Ofgem remains on bearing down on the costs within our control, and unlocking the investment needed to support the transition to a more stable energy system over the longer term.
‘We’re also seeing encouraging signs of greater engagement and competition, with switching increasing by almost 20% year on year.’
Responding to the energy price cap drop, Prime Minister Sir Keir Starmer said: ‘Energy bills are at the front of everybody’s mind, and I know they’ve been too high for too long.
‘I promised to bring bills down and I meant it. And today – because of the actions this Government took at the last budget – the price cap on energy bills has come down by £117.
‘That means lower energy bills for millions across the country, but I know there is more to do and my Government is pulling every lever to bear down on the cost of living and protect the pound in the pockets of working people.’
Chancellor Rachel Reeves said: ‘Cutting the cost of living is this Government’s number one priority and I know energy bills are one of the biggest concerns, that’s why at the budget I said we would bear down on energy bills.
‘We are cutting the cost of living, cutting the national debt and creating the conditions for growth and investment in every part of the country.
‘It is the right economic plan to build a stronger and more secure economy.’
Energy Secretary Ed Miliband said the energy price cap drop was ‘happening because of the actions we took in the budget’.
But he also told Sky News the Government knows it has ‘got further to go’.
Mr Miliband added: ‘The price cap in 2025 across the year was lower in real terms than 2024. We want to drive it down even lower, so it’s up to £300 lower.’
The Government has told firms that it expects the savings to be passed on in full to all customers from April 1, including those already signed up to fixed tariffs.
However, customers have already been advised that the cut to their bill will depend on the size and type of household and how much energy it uses.
Part of the Government’s planned average £150 cut has also been offset by the rising cost of upgrading electricity and gas networks, dropping Ofgem’s overall cut to the price cap to £117.
Ofgem also confirmed a decision to move the costs of the Government’s separate Warm Home Discount from standing charges – the flat rate households pay each day to have energy supplied to their homes – to the hourly unit rate of gas and electricity.
As a result, standing charges will drop by an average of £13, or 4p a day, for customers using both electricity and gas.
Citizens Advice chief executive Dame Clare Moriarty said: ‘A fall in energy prices is welcome but for many people bills remain stubbornly high.
‘For millions of households this has stopped being a temporary hardship and become an ongoing threat to their financial stability.
‘The divide between those who can and cannot keep their homes warm and safe demands urgent action.
‘Too many people, particularly those with disabilities, families with children, and renters, remain trapped in cold, damp homes they cannot afford to heat.’
Dhara Vyas, the chief executive of Energy UK, which represents firms, desrcibed the reduction in the energy price cap as a ‘welcome first step by the Government toward providing meaningful support for households’.
She said: ‘While everyone should see savings on their bills from April 1, the effect of moving some policy costs off the gas and electricity unit price will be different.
‘It depends on each household’s energy use, the type of building you live in, how many people live in the property, and even how the bill is paid.’
Energy experts, Cornwall Insight said the changes will reduce the cap by about £145 a year once VAT and pricing allowances within the cap methodology are taken into account.
It added that increases in charges associated with the operation and maintenance of Britain’s energy networks have offset part of the savings.
Wholesale prices had also risen slightly since the last forecast in December, with the cost of gas particularly volatile due to ‘geopolitical factors’.
Rachel Reeves will next month end the ECO scheme, which requires energy suppliers to pay for insulation and heating upgrades in the homes of people deemed to be living in fuel poverty.
Meanwhile, the cost of the Renewables Obligation scheme, which was created to bolster renewable electricity generation in Britain, will be shifted towards general taxation.
The costs incurred by electricity businesses in investing in renewable electricity generation were previously 100 per cent funded via consumers through policy costs included energy bills.
After two consecutive quarter-on-quarter increases in the cap, the decline will be welcome news for millions of households.
Looking further ahead, Cornwall Insight said wholesale costs were still lower than when Ofgem set the January cap level and it expected the cap to remain ‘relatively steady’ throughout 2026, ‘with only a small rise forecast in July’.
Simon Francis, co-ordinator of the End Fuel Poverty Coalition, urged households to note the changes in unit costs and standing charges, rather than focus on the headline ‘average energy bill’.
He said: ‘We know that energy bills can be confusing and trying to decide when to switch tariffs or change supplier is a big decision which can overwhelm people.
‘As well as setting the price cap, Ofgem should play a greater role in ensuring that the tariffs reaching the market are fair and don’t discriminate against specific customer groups.
‘Sadly the responsibility currently falls to households to pay careful attention to any changes in their unit costs and standing charges.’