People will see their energy bills rise on average by £693 a year after the regulator Ofgem announced that it has increased its price cap by 54%.
The price rises will come into effect in April and will affect 22 million customers on variable gas and electricity tariffs
Chancellor Rishi Sunak has announced a £350 package of help including £200 off energy bills,to be repaid over five years from next year, and a £150 council tax discount..
The increase is driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year.
It will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier exited the market.
Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place.
Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect.
This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it.
Over the last year, 29 energy companies have exited the market or been put in special administration in the wake of soaring global gas prices, affecting around 4.3 million domestic customers.
Jonathan Brearley, chief executive of Ofgem, said:
“We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”
Ofgem will tomorrow announce further measures to help the energy market weather future volatility by increasing financial resilience and have the flexibility to respond so that risks are not inappropriately passed on to consumers. This follows measures announced in December.
The further measures include enabling Ofgem to update the price cap more frequently than once every 6 months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.
Morgan Vine, Head of Policy and Influencing at Independent Age, said:
“With 2.1 million people over 65 living in poverty, these rocketing prices will bring more anxiety and despair as they struggle to pay their bills and stay warm, fed and healthy.
“For older people who are living on a fixed income, often with little if any savings, the extra money simply isn’t there.
“While we welcome the energy and council tax rebates announced today as an acknowledgment of the action that is needed, without additional support this will likely still not be enough to help those older people who are being hardest hit by the increase.
“This devastating rise means more older people will have to make impossible decisions about what to cut back on. We’ve heard from one woman who told us she will have to use a foodbank because she can’t afford to heat her home and buy food.
“With the cost of living rising sharply, the State Pension triple lock being suspended for a year and a lack of urgent action from the government to increase uptake on essential benefits like Pension Credit, people in later life are being hit from every angle.
“This all comes at a time when pensioner poverty is at its highest level since 2008. And new research commissioned by Independent Age shows that many people in later life hover precariously above the poverty line – 4 in 10 older people spent at least one year in poverty in a nine-year period.
“It is vital the government does everything it can to ensure older people are supported financially. Alongside this immediate response, the government must accelerate longer-term solutions, including making sure people are aware of and can easily access the support they are entitled to, like Pension Credit. Otherwise, thousands more older people will be forced to cut back on essentials like food or heating and risk their health in the process.”
Matthew Fell, CBI Chief Policy Director, said:
“The rise in the price cap was inevitable but will pile more pressure on squeezed household incomes.The Government is right to focus on the most vulnerable customers but must urgently work in partnership with energy suppliers to ensure these measures are effective.Short-term support must go hand-in-hand with a revamped retail energy market, setting a higher bar for market access and tougher stress testing for suppliers.
“Businesses too have been impacted by high-cost pressures, so steps to protect cashflow for smaller firms and heavy industry should follow today’s announcement.Government must also step up the level of investment and pace of delivery in home energy efficiency improvements and push forward with ambitious plans to progress the clean energy transition.”
This is a breaking news story and will be updated
