Household energy bills could climb to an average of almost £1,900 a year in the coldest months of the year under the UK government’s energy price cap, according to a leading forecaster.
The energy price cap is expected to climb from the £1,834-a-year level for a typical home set to take effect from Sunday to £1,898 when the cap is next updated for the months from January to March, say analysts at Cornwall Insight, adding to the burden of the cost of living crisis.
The energy price cap sets the maximum price that suppliers can charge based on the average gas and electricity bill, meaning a cold winter could push bills higher if households need to keep the heating on for longer. The cap remains more than 50% higher than pre-pandemic levels.
The analysts blamed an increase in global gas market prices for the likely rise in gas and electricity bills over late winter. The benchmark price for European wholesale gas surged to €43 (£37) a megawatt hour in August because of concerns that strike action at a large Australian gas project could tighten global supplies. Europe relies far more heavily on international gas markets since cutting ties with Russia after its invasion of Ukraine.
Craig Lowrey, the principal consultant at Cornwall Insight, said: “The energy price cap has steadily declined over the past year, and while it is disappointing to see this trend stall, given the movements in the wholesale market of late it is not wholly unexpected.
“While the rise is small, it shows we cannot just assume prices will continue their fall and eventually reach pre-pandemic levels. Policies need to be put in place to deal with the possible situation that high energy prices have become the new normal,” Lowrey added.
The £1,834-a-year cap covering October to December is based on new Ofgem calculations that assume households now use 7% less electricity and 4% less gas, having cut back consumption in the cost of living crisis. When it was announced last month, the regulator gave a headline figure of £1,923 a year, using the old methodology to help comparisons with previous quarters. However, in future only the new system will be used.
The latest energy bill forecast follows calls from more than 140 organisations and individuals, including the consumer champion Martin Lewis, to help Britain’s least well-off households with a social tariff for their gas and electricity.
In the letter, seen by the Guardian, they demand help for households facing “impossibly high energy bills”, which experts warn will continue for the rest of the decade.
Lowrey said the although the government’s “toolbox” of short- and medium-term policies, including targeted support such as social tariffs, could help ease the burden on vulnerable households they would not be able to “overcome the effects of a volatile international energy market on bills”.
“It is only by continuing our transition away from fossil fuels, towards secure and sustainable domestic energy sources that we can reduce our exposure to such international drivers and, in turn, stabilise our energy prices,” he said.
The forecast increase effectively wipes out the modest drop for the energy price cap due to come in from Sunday, but fuel poverty campaigners warned that even the small decrease was unlikely to ease the financial burden for the most vulnerable households.
“It’s hugely worrying that the pain of higher energy prices is set to wreak havoc on vulnerable households again this winter,” said Peter Smith, the director of policy at National Energy Action.
“Since the withdrawal of almost all energy bill support, time is running out for the UK government to come forward with targeted energy bill support to protect the most vulnerable households. Too many households are already drowning in energy debt and won’t be able to cope with even higher, unaffordable bills, again this winter.”
The energy price cap is designed to reflect the fair cost of supplying energy but campaigners claim that since the war in Ukraine triggered an increase in market prices it is no longer affordable for millions of households.
The Ofgem chief executive, Jonathan Brearley, told the Guardian earlier this year that he was calling on ministers to rethink whether the “very broad and crude” price control was still fit for purpose during the energy crisis.
“The price cap was designed for a market that was much more stable – so, pre-2020 – and it worked quite well,” he said. “But in this volatile market, the price cap has costs as well as benefits, so we would welcome a debate on the future of pricing regulation.”
