By Susanna Twidale
LONDON (Reuters) - Energy prices are set to fall for millions of British households this winter after the energy regulator said its cap on the most widely used tariffs would be lowered by about 7.5% from Oct. 1, to their lowest level since the cap began.
A cap on electricity and gas bills came into effect in January 2019 and was a flagship policy of former British Prime Minister Theresa May to end what she called "rip-off" prices.
The reduction was due to a fall in wholesale gas prices since February as lockdowns on business and homes led to a slump in demand, regulator Ofgem said.
“The COVID-19 crisis has depressed energy demand although wholesale gas prices have started to recover since hitting 20-year lows in the spring,” Ofgem said in a statement.
The cap for average annual consumption on the most common tariffs, used by around 11 million households, will fall by 84 pounds to 1,042 pounds, Ofgem said.
The cap for some 4 million homes on pre-payment energy meters will fall by 95 pounds to 1,070 pounds a year.
Ofgem calculates the cap using a formula that includes wholesale gas prices, energy suppliers network costs and costs of government policies, such as renewable power subsidies.
(Graphic: Breakdown of a British dual fuel (gas and electricity) bill % - https://fingfx.thomsonreuters.com/gfx/ce/dgkpldzzrpb/Pasted%20image%201596782287268.png)
Ofgem also recommended the cap, which is adjusted twice a year, should remain in place in 2021.
Under legislation the cap could be lifted from 2020 and no later than 2023, with the final decision to be decided by government.
Despite the cap, Ofgem said those seeking cheaper energy prices may still find better deals by shopping around.