Energy bills will fall by at least 7 per cent in April, saving a typical household £117 a year but falling short of Rachel Reeves’s promised £150 cut.

Ofgem confirmed that a typical household on a standard variable tariff would receive a cut in bills to £1,641 a year, from £1,758, after a reduction in the energy price cap.

The regulator said that the fall was primarily the result of the cuts to green levies on bills, announced in the budget. However, for those on standard tariffs — the majority of households — the saving has been offset by increases in levies to fund upgrades to the gas and electricity networks.

Only households on fixed tariffs — about 40 per cent of customers — are expected to see the full savings, after the government ordered suppliers to amend fixed tariffs to pass on the green levy cuts.

The price cap limits the maximum rates that suppliers can charge for gas and electricity for customers on standard variable and prepayment meter tariffs. Ofgem updates the cap level every three months based on its assessment of costs that efficient suppliers should incur.

In November, Reeves announced that she was scrapping the energy company obligation, a widely criticised home insulation scheme funded through bills, and temporarily shifted most of the costs of subsidising old renewable energy projects from bills into general taxation.

The chancellor said at the time that the changes would cut £150 from the average annual household energy bill from April.

The chancellor visits Octopus Energy as Ofgem announces reduction in energy bills

Ed Miliband, the energy secretary, repeated his pledge to further reduce bills by 2030. He told BBC Breakfast: “We said at the election that we would get bills down by up to £300 by 2030. We said that because we care so much about the affordability crisis that people are facing.

“I do not think this is job done. I think this is an important milestone for us, but we have further to go in the decisions that we take.”

Ofgem said that the changes Reeves made in the budget would indeed result in an average reduction in policy costs of £150 per household, based on a simple “mean” average. It describes the price cap based on lower usage figures of a “typical” or median household — for whom it would equate to a £130 cut in annual policy costs.

Policy costs are not the only change reflected in the price cap, however. Wholesale energy costs have also fallen, producing a further £38 annual saving for a typical household. But these have been offset by a £66 increase in network costs to fund maintenance and upgrades to gas pipelines and electricity transmission cables. That results in the net saving of £117 for a typical household under the price cap.

For households on fixed tariffs, their rates to cover all elements of the bill were locked in at the time they signed up to their deal, so the only change suppliers are allowed to make is to pass on the green levy savings. They should therefore see the full benefit of the promised saving over the remainder of their contract.

Energy companies and consumer groups have long called for the government to fund green levies from general taxation rather than energy bills, arguing that this would be far more progressive and ensure that wealthier households paid a greater share.

Keith Anderson, chief executive of Scottish Power, said: “I think they’ll look at other stuff: things like the warm home discount. Maybe there’s an opportunity for the government to take that off bills and put that through general taxation.”

Greg Jackson, boss of Octopus Energy, said: “We’ve long campaigned to shift levies off electricity, and today we’re seeing the impact — with bills falling about £10 a month. Customers will welcome this, and we’ll keep pushing for more changes to cut bills further.”

Peter Smith, director at the charity National Energy Action, said: “Any fall in sky-high energy bills is welcome. Hopefully, it can take a little pressure off households who have been struggling in cold, unhealthy homes this winter. But the new level is still far from affordable. Those on the lowest incomes in the leakiest homes will face deep debt and will still struggle to stay warm and well at home.”

The energy company obligation scheme was supposed to help households save money by providing them with home insulation to cut energy usage. However, a report by the National Audit Office last year found that almost all homes insulated through the scheme had had botched work done and needed to be fixed to stop them growing damp and mouldy.

More action is needed to cut household bills

Rising network costs have taken the shine off the chancellor’s promised £150 bill saving, and threaten an even bigger headache in years to come.

Britain is embarking on a £70 billion expansion of its electricity cabling network to accommodate new wind farms and rising consumer demand, such as from data centres and electric vehicles. This upgrade work is funded by levies on energy bills, which are forecast to keep rising over the rest of this parliament. Ofgem said in December that there would be a £76 increase in network levies by April 2030 on top of the rise announced for this April.

Network levies are not the only “non-commodity” cost set to add to bills. Pending the completion of the new cables, consumers are predicted to face rising costs to pay wind farms to switch off when the network cannot cope with the electricity they are generating.

Costs of government policies levied on bills are forecast to keep rising, too, such as subsidies for new wind farms, and schemes to prop up other types of power plants. Industry forecasts suggest an increase in these costs of more than £100 a year by 2030 is likely.

The chancellor has succeeded in masking this trend on this occasion, by removing some policy costs from bills altogether — shifting some older renewable energy subsidy costs into general taxation and scrapping the energy company obligation scheme.

But this one-time saving cannot change the underlying trend. Ministers will have to take further action if they want to come close to meeting their manifesto pledge of cutting bills by £300 this parliament. Moving more policy costs into general taxation appears the obvious solution. Otherwise, ministers will face the politically damaging spectre of the regulator announcing every few months that bills are rising once more as a direct result of the government’s green agenda.