Energy Price Guarantee to become less generous from April 2023

The Energy Price Guarantee introduced under Liz Truss will be replaced by a less generous version from April 2023, under which a typical household bill rises to £3,000, according to the Resolution Foundation's analysis of the Autumn Statement delivered by the Chancellor, Jeremy Hunt, on 17 November 2022¹.

The Resolution Foundation describes the change as "a more modest form of Truss' Energy Price Guarantee (which will see a typical bill rise to £3,000 next April)"¹. It says the energy support package for next year combines a slightly more generous repeat of Rishi Sunak's lump-sum Cost of Living Payments for those on benefits and pensioners with that reduced guarantee, making the total less generous than the current year but more progressive¹. It adds that households with harder-to-heat homes or larger families will be particularly hard hit, with almost one-quarter (23 per cent) of households facing bills of over £4,000 next year¹.

The energy measure sits within a wider fiscal tightening. The Chancellor announced a £55 billion a year fiscal tightening to meet his "considerably loosened" fiscal target of getting debt falling as a share of GDP by 2027-28¹. The Resolution Foundation says the £25 billion of new tax increases announced in the Autumn Statement largely fill the revenue hole caused by the remaining tax cuts from Truss' tenure¹. It states that Chancellors since the pandemic have raised taxes by 2.3 per cent of GDP, or £68 billion, equal to £2,300 per household in 2027-28, and that tax as a share of GDP is rising to its highest level since the Second World War, at 37.5 per cent by 2024-25¹.

On household incomes, the report says average real household disposable incomes are forecast to fall by 7.1 per cent over 2022 and 2023, equivalent to £1,700 per household, returning to 2014 levels¹. It notes that all benefits are being uprated in line with inflation, at 10.1 per cent¹. Accounting for all announcements this Parliament, it says the poorest fifth of households will be £350 better off on average, while typical households see incomes reduced by £1,100 in 2027-28, rising to a £4,200 loss for the top decile¹.

The report also sets out the Office for Budget Responsibility's forecasts, which point to unemployment rising by 500,000, and says borrowing is left £270 billion cumulatively higher over the coming five years than was expected in March¹. It says Public Sector Net Investment will be frozen in cash terms from 2025-26, a £15 billion cut taking it from 2.5 per cent of GDP this year to 2.2 per cent in 2027-28¹. A £22 billion reduction in day-to-day public services, alongside existing protections for health, defence and education, implies cuts to unprotected departments such as transport, policing and local government of around 0.8 per cent per year between 2024-25 and 2027-28¹.

Why it matters for households

The change to the Energy Price Guarantee takes effect in April 2023 and raises the typical bill to £3,000, so support with energy costs is lower next year than in the current year¹. The Resolution Foundation says the package is more progressive overall, but that almost 23 per cent of households face bills above £4,000 next year¹. The energy price cap set by Ofgem is separate from the guarantee.

On tax, the report says 70 per cent of the new taxes for individuals announced in the Autumn Statement will be paid by the richest fifth of households, but that relying on threshold freezes raises fairness questions: someone on £62,000 loses as much from threshold freezes as someone on £124,000 in cash terms, at £1,600, but twice as much as a share of income, at 2.6 per cent against 1.3 per cent¹. It also describes the decision to raise almost £5 billion through higher Council Tax as poorly targeted at those with higher incomes¹. The lowering of the threshold for the 45p rate of income tax to £125,000 is among the measures announced¹.

What happens next

The reduced Energy Price Guarantee takes effect in April 2023, when the typical bill rises to £3,000¹. Benefits are uprated by 10.1 per cent in line with inflation¹. The spending cuts to unprotected departments and the freeze to Public Sector Net Investment are pencilled in from 2025-26, after the next general election¹.