A 7% Energy Price Cap Drop — Finally, But It’s Nowhere Near Enough

From 1st July, Ofgem will reduce the domestic energy price cap by 7%, lowering average annual dual-fuel bills from £1,849 to £1,720. It’s being presented as a victory — a sign that the cost-of-living crisis is finally easing. But let’s not kid ourselves. As reported by The Financial Times, the price cut will save households around £129 a year, or roughly £10 a month — barely a dent for most struggling families. (Financial Times, 23 May 2025)

At the same time, bills remain £152 higher than this time last year, according to The Guardian (The Guardian, 23 May 2025). Compared to pre-crisis levels, bills are still up 34%, with standing charges now at record highs. So while the government and Ofgem are busy taking credit for the drop, the reality is most families won’t feel the difference — and many still won’t be able to afford to properly heat their homes.

Energy debt is also spiralling. The Guardian reports that 2.7% of households paying by direct debit are now in arrears, and energy-related debt has soared past £3.8 billion. That’s not a sign of economic recovery — it’s a red flag.

And what’s driving these stubborn prices? Ofgem and Energy UK cite volatile global wholesale prices, standing charges, environmental levies, and VAT — all baked into the cap. Even when wholesale energy falls, the fixed charges don’t budge. The standing charge alone can cost households over £300 a year, just to access gas and electricity. (Ofgem, June 2025)

While Labour has pledged to set up “Great British Energy,” a publicly-owned renewables company, there’s been little clarity on how this will cut prices in the short term. Reuters notes that Britain’s long-term energy stability hinges not just on renewables but on reforming pricing models and redistributing levies that currently punish electric users more than gas. (Reuters, 24 June 2025)

Meanwhile, industry voices like Make UK and Energy UK are calling on ministers to shift environmental levies away from electricity bills to encourage adoption of heat pumps, EVs, and other cleaner technologies. Otherwise, the push for net zero could stall entirely — with working families carrying the burden.

Even the Committee on Climate Change has warned that unless energy costs are significantly lowered, Britain’s clean energy transition risks grinding to a halt. High bills disincentivise the very behaviours — electrification, home insulation, switching to renewables — the government claims to support.

So yes, a 7% drop is welcome. But let’s not pretend it’s a turning point.

It’s a cosmetic win. A headline grabber. A minor drop in what remains a dangerously inflated pool of household pressure. Real reform would mean overhauling standing charges, rebalancing levies, cutting VAT on energy altogether, and putting the interests of bill payers above shareholder profits.

Until that happens, this “relief” is just temporary — and winter will come round again all too soon.