The Chancellor confirms the continuation of the energy price guarantee at the current rate for an additional three months.

In response to warnings that it would plunge tens of thousands more households into poverty, Treasury reversed course on a planned cut to household energy assistance.

The government confirmed on the morning of chancellor Jeremy Hunt’s budget speech that the energy price guarantee would continue at its current rate, which caps an average annual household bill at £2,500. It is being extended from April, when it was set to expire, until the end of June, a total of three months.

The reversal, which was widely anticipated, means that typical bills will not increase to £3,000 per year in April, as had been originally announced in the fall of last year.

The action will alleviate some pressure on households already struggling with the rising cost of living. However, the one-time support of £400 that has been available in monthly installments throughout the winter will end on April 1.

Hunt yielded to pressure from campaigners, charities, and consumer advocate Martin Lewis, who warned that more Britons would be impoverished if summer aid were not extended.

The energy price guarantee reduces monthly bills by compensating suppliers for the difference between market prices and a £2,500 cap. This assistance was to be eliminated in April, leaving consumers with only the price cap imposed by Ofgem, the British energy regulator. Ofgem had announced that the annual cap for a typical household would be set at £3,280 beginning in April, which would have resulted in a significant increase in household energy costs.

The wholesale energy cost will decline significantly over the summer, so additional government assistance will not be required after July.

The government stated that state subsidies on energy bills had “reduced the average family’s energy bill by more                  than £1,300 since October” and that maintaining the support at its current level was worth an additional £160 to the average household.

Rishi Sunak, the prime minister, stated, “We’re aware that people are concerned about their bills increasing in April, so to give them peace of mind, we’re keeping the energy price guarantee at its current level until the summer when gas prices are expected to decline.” “Maintaining low energy costs is a component of our plan to assist hardworking families with the cost of living and cut inflation in half this year,”

Hunt stated, “This temporary change will bridge the gap [until gas prices fall] and alleviate the strain on families while also helping to reduce inflation.”

Hunt announced in November that the guarantee would increase to £3,000 on April 1 and that the government planned to borrow £12 billion to fund the support. Since then, energy prices have decreased by 50%, reducing the required borrowing for energy support to £4 billion, as reported by the Treasury.

Campaigners had requested an extension of the current level of support until July when the Ofgem price cap is anticipated to reflect the recent drop in wholesale gas prices and fall below the £2,500 threshold. As long as the level of the price guarantee is below the Ofgem price cap, the government will pay the difference to suppliers to cover the cost of purchasing wholesale energy at prices that the conflict in Ukraine has inflated.

In April, the price ceiling will decrease to £3,280 from £4,279; by July, it is expected to reach approximately £2,100. In this case, the government will no longer be required to subsidize utility costs.

If the price cap remains above £3,000 after July, the government will continue to pay the difference to suppliers. The coverage will expire in April 2024.

Since Liz Truss announced the energy price guarantee in September during her brief tenure as prime minister, it has evolved. She pledged to maintain average monthly bills at £2,500 for the next two years at an estimated cost of between £72 billion and £140 billion.

Hunt made the policy less generous in November, leaving it on track to cost £42 billion. Since late December, however, falling wholesale prices have reduced the price further. The U-turn by Hunt is estimated to cost approximately £3 billion, bringing the total cost of the government’s energy price guarantee to an estimated £29.4 billion.