Jeremy Hunt has announced plans to scrap a planned rise to the Energy Price Guarantee to £3,000 a year on average, up from £2,500.

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The Spring Budget is also set to confirm a raft of other fiscal changes such as an increase to the pensions lifetime allowance and freezing of fuel duty.

The Chancellor came under huge pressure to cancel the EPG rise.

MoneySavingExpert.com (MSE) founder Martin Lewis had been urging him to scrap it for months.

He, along with other experts, have called on the government to reduce the EPG, to reflect the falling wholesale prices.

In February, the consumer expert warned: “You’re going to pay 20% more.”

He said: “The energy price cap doesn’t replace the price that energy retailers can charge consumers, it dictates the price energy retailers can charge – and I’ll explain why that’s different.

What is the energy price guarantee?

Last year, the government stepped in to stop bills rocketing to over £4,000 under the price cap.

It introduced the Energy Price Guarantee (EPG) to limit the average bill to £2,500 – although the more you use the more you pay.

The energy price guarantee was rolled out from October 1. It applies to customers on standard variable tariffs.

It sees the Government limit the price suppliers can charge customers for units of gas, and replaced the price cap set by regulator Ofgem.

From April 1 the EPG is set to go up to £3,000 but the Chancellor is now set to cancel that, keeping it at £2,500.

What is the energy price cap? 

The price cap on energy bills was introduced in January 2019 as a way to ensure that households are not ripped off by their energy suppliers.

At the moment, the Energy Price Guarantee is cheaper – and that is the rate that energy firms charge households.

The price cap changes every three months and it’s expected that by July, the price will be cheaper than the Energy Price Guarantee and that will mean another fall in bills for households.

Gas prices were already increasing last summer as demand bounced as countries emerged from lockdown.

But the situation was made much worse when Russia invaded Ukraine and started to restrict gas exports to Europe.

Gas prices are also decisive for electricity prices.

This is because gas is so important for the generation of electricity.

Over the last year, 42% of the UK’s electricity came from burning gas.

How does the energy price cap work?

The energy price cap works by setting a limit on the maximum amount suppliers can charge for each unit of gas and electricity.

Ofgem sets a maximum daily standing charge which is what households have to pay in order to have their home connected to the National Grid.

The energy price cap only applies to providers’ standard and default tariffs.

This means if you’re on a fixed-term energy deal, the cap doesn’t apply to you.

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