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The energy regulator has confirmed the average household energy bill will rise from October this year, which could mean homes across Britain are facing higher bills this winter.
Ofgem’s price cap will rise by £149 from the current £1,568 a year for a typical household in England, Scotland and Wales to £1,717.
Here‘s a look at why the price cap is going up and what people can do to mitigate the cost of their energy bills.
What is Ofgem’s price cap?
The energy price cap sets a maximum price that energy suppliers can charge consumers in England, Scotland and Wales for each kilowatt hour (kWh) of energy they use.
The figures provided by Ofgem indicate what a household using gas and electricity, and paying by direct debit, can expect to pay if their energy consumption is typical.
It is important to note that it does not limit a home’s total bills because people still pay for the amount of energy they use – so if it is above the average they will more, and if it below they will pay less.
Energy is regulated separately in Northern Ireland.
I’d encourage people to shop around and consider fixing if there is a tariff that’s right for you— Jonathan Brearley, Ofgem's chief executive
Why is the price cap rising?
Ofgem said the main reason why it has decided to increase the cap is because of rising wholesale prices in the international energy market, which has been caused by heightened geopolitical tensions and extreme weather events.
Jonathan Brearley, Ofgem’s chief executive, said “international gas prices – the gas that we buy to heat our homes and to make sure we have the electricity we need – has gone up, and that’s feeding through to our bills”.
“Ultimately, while we are dependent on gas, we will be in this situation where prices go up and down,” he told Sky News.
What can I do to lower my bills?
Mr Brearley said he was encouraging people to “shop around” to see if they can get a better deal on their energy tariff.
“For the first time in a long time, we are seeing some good value deals emerge,” he said.
“I’d encourage people to shop around and consider fixing if there is a tariff that’s right for you – there are options available that could save you money, while also offering the security of a rate that won’t change for a fixed period.”
As a rule of thumb, we'd recommend looking for deals around the price of the current price cap, not longer than 12 months and without significant exit fees— Emily Seymour, Which? energy editor
Martin Lewis, the founder of MoneySavingExpert.com, said people “can and should save by switching” their energy supplier, and consider a fixed-price energy tariff.
“The cheapest year-long fixes on the market right now are about 7% less than the new October price cap, but they might not be around long,” he cautioned.
Mr Lewis suggested that people look for the cheapest option for their use and location, and can use comparison sites to find and compare deals.
Emily Seymour, the energy editor or Which?, said: “Unfortunately, there’s no ‘one size fits all’ approach when it comes to fixing an energy deal as it will all depend on your individual circumstances.
“You should compare what your monthly payments would be on a fixed deal with what you’d expect them to be if you remain with the price-capped variable tariff to see what the best option is for you.
“As a rule of thumb, we’d recommend looking for deals around the price of the current price cap, not longer than 12 months and without significant exit fees.”
What support is available for me?
Ofgem urged people to make the most of any state benefits they are entitled to, which could help with paying energy bills as well as the wider cost of living.
Around 1.4 million pensioners are already receiving pension credit, but the Government estimates up to 880,000 further households are eligible for the support for those with a low income.
People receiving pension credit qualifies them for the winter fuel payment worth up to £300, to help with bills.
Previously, anyone over state pension age could receive the payment, but this was changed by the new Government, meaning about 10 million pensioners will miss out this year.
I think I’m going to struggle to pay my bills, what can I do?
People are encouraged to contact their energy supplier if they are worried about paying their bills.
Energy companies are required to work with customers to agree on a payment plan they can afford, which could mean more flexibility over how and at what time people pay.
They should take into account people’s income and outgoings, debts and personal circumstances, and an estimate of how much energy will be used in future, for which regular meter readings can help build a more accurate picture.
Richard Lane, of debt charity StepChange, said it was a “worry that a rise in the price cap may tip struggling households into deeper debt.”
He urged the Government to introduce targeted support for those who are struggling the most.
