Millions of households in the UK are poised to face the highest energy prices in three years, with Ofgem, the energy regulator, set to increase its price cap this October. This adjustment comes in response to a surge in the wholesale cost of gas, impacting consumer bills as the colder months approach.
The new cap marks a 4% increase compared with its current stance, translating to an average household cost rise of £60 annually for typical gas and electricity consumption. Notably, over a third of households are currently on fixed tariffs, insulating them from this change.
Energy suppliers highlight the escalating energy debt and the persistence of high bills, pushing for enhanced support from the government for those struggling financially. In light of these concerns, the government has announced a VAT cut on electricity bills starting in October, applying to both standard and fixed rates. Miatta Fahnbulleh, the Energy Secretary, emphasised the government’s continued efforts to safeguard families from prohibitive energy costs.
However, future predictions by energy consultancy Cornwall Insight indicate a potential 9% rise in domestic energy prices at the start of the new year, further amplifying concerns as winter takes hold.
Ofgem’s director general for markets, Neil Kenward, acknowledged ongoing international gas price pressures impacting UK energy costs. He praised the planned VAT reduction on electricity bills as a crucial relief measure for consumers this winter. Kenward also pointed out that fixed tariffs remain available, offering savings of £100 or more beneath the October price cap.
Fixed Tariffs as a Shelter
Currently, approximately 35% of households—11 million of them—are on fixed tariffs, leaving 22 million in England, Wales, and Scotland subject to the price cap’s influence. As per Ofgem, if sustained over a year, the new cap would elevate the average household’s annual energy bill to £1,723, based on combined electricity and gas usage.
The energy cap limits the unit price of gas and electricity rather than the overall bill, meaning total costs will vary with usage. In July, Ofgem amended what it considers an average energy consumption level, reflecting greater energy efficiency and reduced usage amidst previous price hikes. The typical usage is now estimated at 9,500 kWh for gas and 2,500 kWh for electricity annually.
Reporting based on coverage first published by bbc.co.uk.