A CHANGE in how the UK energy price cap is calculated has masked the cost increase facing billpayers.
On Wednesday, energy regulator Ofgem confirmed that the energy price cap – the amount which the average, dual-fuel UK household paying bills by direct debit will spend per year – is set to rise from £1663 to £1723.
However, these figures use updated Typical Domestic Consumption Values (TDCV) to calculate the energy which an average UK household consumes. Ofgem has revised TDCV downwards to reflect that UK households are using less energy than they did previously.
Compared to October 2023 (the last time TDCV was changed) households are using around 7% less electricity and 17% less gas. This is, Ofgem accepts, in part because of “higher prices”.
So, the official energy price cap is lower than it would otherwise be due to high prices pushing down consumption.
Under the previous TDCV value, the average energy bill for a dual-fuel UK household will hit £1935 from October 1. This is up from the current energy price cap, which was set at £1862 on July 1.
Here, The National has charted out the UK energy price cap would look under the old and new TDCV values. Data comes from both Ofgem and MoneySavingExpert.com.
When Labour came to power in July 2024, the price cap was set at £1568. Under the new TDCV, this would have been £1414.
Analysts at Cornwall Insight have predicted that in January 2027 the price cap will rise 9% to £1872. Under the old TDCV, this would be £2103 a year.
The rise in the energy price cap will also “wipe out” any savings from Andy Burnham’s decision to remove VAT from energy bills, campaigners warned.
From October 1 – the day the new price cap comes in – VAT on domestic electricity bills will fall from 5% to 0%, which the UK Government estimated would save the average household around £45 a year.
Poverty Alliance chief executive Peter Kelly said: "This price cap hike will more than wipe out the savings that the UK Government promised from cutting VAT on electricity.
“It shows the urgent need for the Prime Minister to take real action by finally bringing in a social tariff for energy – making sure that people on low incomes aren't hit with unaffordable bills.
"The Scottish Government can help too. They can make sure Scotland's social security payments keep pace with rising bills, build new warm homes for social rent, and invest much more in home insulation and renewable heating."
First Minister John Swinney has demanded “immediate assistance” from the UK Government in response to the energy price cap rise.
“The UK Government came to office promising to cut people’s bills by £300, yet bills are already more than £250 higher – and they are going to increase further as we head into winter,” Swinney said.
“Those higher costs are causing unnecessary difficulties for families already struggling with other pressures on household budgets.”
UK Energy Secretary Miatta Fahnbulleh said that “families will be understandably concerned about the cost of energy bills this winter” adding that prices are “being driven up by the Iran War”.
She said: “Energy is an everyday essential and it needs to be affordable for everyone, which is why we have cut VAT on electricity bills from October, to give families some breathing space.
“This has limited the rise in the price cap and follows the £150 in costs we removed from bills earlier this year, and we will keep looking at what more we can do to protect families from unaffordable bills.”
