Millions of UK households will see their energy bills rocket as the price cap is hiked to £3,549 from October with regulator Ofgem announcing an 80% energy increase that risks pushing more families into fuel poverty this winter.
Winter energy bills are set to be more than triple what they were a year ago, costing more than 11% of a household’s median disposable income, according to the Office for National Statistics (ONS).
“We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many,” Jonathan Brearley, CEO of Ofgem, said.
Ofgem said the increase in energy bills reflects the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the COVID pandemic and have been driven still higher to record levels by Russia slowly switching off gas supplies to Europe.
Jonathan Brearley, head of Ofgem, says price rise will be ‘devastating’ for families
He warns that prices ‘look like they are continuing to rise this Winter’
He says this is beyond the capacity of the regulator to address – the next PM needs to act ‘urgently and decisively’
— Steven Swinford (@Steven_Swinford) August 26, 2022
“We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action. The response will need to match the scale of the crisis we have before us. With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this,” Brearley added.
Read more: Energy bills: How to cope with soaring prices
Ofgem also warned that the market for gas in winter means that “prices could get significantly worse through 2023”.
The regulator isn’t giving price cap projections for January, when the cap will next change, “because the market remains too volatile”. However, Ofgem’s boss told BBC’s Radio 4 that “prices look like they will continue to rise”.
IMPORTANT: Many reporting the new price cap is £3,549/yr. That is not correct.
1. There is no actual cap on the max you can pay.
2. What’s capped is standing charges and unit rates (i’ll publish em shortly)
3. £3,549 is the cap for those on average use, Direct Debit, Dual fuel.— Martin Lewis (@MartinSLewis) August 26, 2022
As well as lifting the price cap by 80%, Ofgem on Friday also strengthened the rules around direct debits to ensure suppliers set them at the right level.
“The changes will stop suppliers from building up excessive customer credit balances and using them in a risky way as working capital,” it said.
The escalating energy crisis may cause more pain for households than the 2008 financial crisis, according to consultancy Baringa Partners.
James Cooper at Baringa said: “The impact to society will be higher than the 2008 crash in terms of the impact on households.
“We’re now moving into territory where a majority of households are placed into debt or a very fragile financial position.”
Energy poverty is defined as when a household must spend more than 10% of its income on fuel.
Read more: Energy bills direct debit: What Ofgem announcement means for consumers
“The increase in the energy price cap will raise the peak in inflation to levels not seen for over a generation. Poorer households will suffer great hardship as a result, which will require a substantive fiscal intervention. And there will be more pressure for Bank rate to increase, particularly if it is felt that the Bank of England has to re-establish credibility against a backdrop of increasing political interference,” Jagjit Chadha, director at NIESR, said.
“Economic and political circumstances have changed markedly from the Spring and it is critical that we move to a substantive fiscal event in the Autumn, incorporating a re-assessment of the new government’s economic priorities and the prospects for the UK economy in a turbulent world,” he added.
Energy costs could eventually drain as much as 17% of household income next year if the government doesn’t give more help, based on price-cap estimates from Cornwall Insight.
Customer debt is already on the rise. In the summer, people usually pay down debt built up during winter, when they use more energy.
“Workers across the country will have woken to the news that they will need to pay 80% more for their energy bills at a time when they are already are already facing a record 3% fall in real wages. In particular, it is a hammer blow for the 6.2 million people in severely insecure and low-paid work who have already been struggling to make ends meet,” Ben Harrison, director of the Work Foundation at Lancaster University, said.
“The new prime minister must grasp the severity of this situation and bring forward an Emergency Budget to give workers across the country support as we head for a living standards crisis that without intervention, will only get worse.”
? Independent analysts Cornwall are predicting these numbers for the impact of cap on average household next year…
January 2023: £5386
April 2023: £6616£551 per month… not far off an average mortgage of £700 pic.twitter.com/INousywtXm
— Faisal Islam (@faisalislam) August 26, 2022
“When it comes to preparing for autumn and winter, start now. If you pay for your energy by cash or cheque, call your supplier and find out how much you can save by switching to Direct Debit. Not only can it save you money, but it will help spread out your payments over a year rather than peaks in bills in the winter months,” Stephen Murray, energy expert at MoneySuperMarket, said.
“If you haven’t got a smart meter, get one so you can use the in-home display unit to see how much energy appliances use and real time costs.
“This can help spot where you can make changes that save you money. Most importantly, having a smart meter means your bills will be as accurate as possible. If you don’t have one, make sure you’re submitting regular meter readings.”
“If you’re struggling to pay your energy bills, you’re not alone. The first step is to contact your supplier to find out what support is available,” he added.
Read more: Ofgem plans quarterly review of price cap to prevent unfair higher energy bills
Helping households by freezing the price cap at the current level for two years would require about £100bn, according to Keith Anderson, chief executive officer of Scottish Power.
Which? has warned the government needs to raise its energy bills discount by at least 150% or risk pushing millions of households into financial distress.
The consumer group said the government’s financial support for all households must increase from the current £400 to £1,000 — or from £67 to £167 per month from October to March.
The existing support package is inadequate to protect living standards for those on the lowest incomes, it said.
No immediate extra help will be announced by Boris Johnson’s government, with major financial decisions being postponed until either Liz Truss or Rishi Sunak is in No 10 after the Tory leadership contest.
The Resolution Foundation has warned that UK households “simply” do not have the money to pay their energy bills as these are set to cost around £2,000 more this year than last year.
British Gas will donate 10% of its profits to help its poorer customers manage rising gas and electricity bills for the “duration of the energy crisis”.
“While Putin is driving up energy prices in revenge for our support of Ukraine’s brave struggle for freedom, I am working flat out to develop options for further support. This will mean the incoming prime minister can hit the ground running and deliver support to those who need it most, as soon as possible,” chancellor Nadhim Zahawi, said.
Watch: Why are gas prices rising?
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