Ofgem has confirmed an 80.06% rise in the energy price cap, sending the average household’s yearly bill from £1,971 to £3,549 from October. The cap will come into effect for around 24 million households in England, Scotland and Wales on default energy tariffs on October 1, and will remain in place until December 31, when it will be adjusted again.
Ofgem’s chief executive Jonathan Brearley warned of the hardship energy prices will cause this winter and urged the incoming Prime Minister and new Cabinet “to provide an additional and urgent response to continued surging energy prices”.
The regulator said the increase reflected the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the Covid pandemic, and had been driven still higher to record levels by Russia slowly switching off gas supplies to Europe.
Chancellor Nadhim Zahawi said the increase in the energy price cap would cause “stress and anxiety” for people but that the Government was working to develop more options to support households.
“I know the energy price cap announcement this morning will cause stress and anxiety for many people, but help is coming with £400 off energy bills for all, the second instalment of a £650 payment for vulnerable households, and £300 for all pensioners,” he said.
“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.”
Ofgem decides the price cap by observing what wholesale energy prices do over several months. It then multiplies this price per unit by the number of units of gas and electricity that an average household uses in a year.
To this it adds several charges. These include VAT, green and social levies, charges paid to the energy networks, and a small amount of profit. The cap is designed to limit the amount of profit that an energy supplier can take. It does not limit the profits of the companies that sell the same energy to that supplier.
Based on Wednesday’s gas prices, experts at consultancy Auxilione think the cap will reach £5,210 in January 2023 and £6,823 in April. Then it will fall, but only to £6,106 in July and £5,668 next October.
More on this as we get it.
