The UK’s energy price cap, the maximum amount a utility company can charge an average customer per year for the amount of electricity and gas they use, has been reviewed and risen by 54 per cent, meaning a steep rise in household bills this spring.
As of 1 April 2022, the cap rose from £1,277 to £1,971 for a household on average usage. That means a £693 per year increase for the average customer.
Prepayment meter customers are seeing an even greater increase of £708 from £1,309 to £2,017.
Jonathan Brearley, chief executive of the energy regulator Ofgem, has 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 last review on 6 August 2021 was itself a rise of 12 per cent or £139 on six months earlier and, in worse news, Mr Brearley has since told the House of Commons’ Business, Energy and Industrial Strategy Committee that he is expecting the cap to rise again in October, putting the cap “in the region of £2,800”.
That last development promises a dire winter for British households when the cost of living is already spiralling, with inflation now at a 40-year high of 9 per cent.
Without financial help, some 2 million more people are forecast to be plunged into fuel poverty this year, meaning 6 million people in total would be struggling to heat and power their homes.
Charities have warned of an “inevitable” rise in destitution as people on the lowest incomes become unable to afford other essentials such as adequate food and clothing.
Cost of living: How to get help
The cost of living crisis has touched every corner of the UK, pushing families to the brink with rising food and fuel prices.
- The Independent has asked experts to explain small ways you can stretch your money, including managing debt and obtaining items for free.
- If you need to access a food bank, find your local council’s website using gov.uk and then use the local authority’s site to locate your nearest centre. The Trussell Trust, which runs many food banks, has a similar tool.
- Citizens Advice provides free help to people in need. The organisation can help you find grants or benefits, or advise on rent, debt and budgeting.
- If you are experiencing feelings of distress and isolation, or are struggling to cope, The Samaritans offers support; you can speak to someone for free over the phone, in confidence, on 116 123 (UK and ROI), email jo@samaritans.org, or visit the Samaritans website to find details of your nearest branch.
Chancellor Rishi Sunak has since announced that £150 council tax rebates would be given to homes in bands A to D and as well as plans to offer a £200 discount on bills.
A government-backed loan scheme of that order will cost around £5bn to £6bn, well below the £20bn demanded by the energy industry, which has already been criticial of the announcements trailed.
Dale Vince, the boss of Ecotricity, has already called the measures “far too little, far too late”.
Responding in the Commons, Labour’s shadow chancellor Rachel Reeves likewise called Mr Sunak’s plans a “buy now pay later scheme that loads up costs for tomorrow”.
The chancellor is now poised to announce billions of pounds of further help for people struggling having previously expressed reluctance, only to have his hand forced by the deepening crisis.
At least 28 British suppliers went bust because of the burgeoning crisis in 2021 and their surviving competitors have repeatedly urged the government to intervene as a matter of urgency to save them from the same fate.
Other political options for tackling the problem still open to Boris Johnson’s administration include scrapping the 5 per cent VAT rate on household bills, suspending environmental levies that fund renewable energy schemes, imposing a windfall tax on oil and gas firms operating in the North Sea and expanding the aforementioned discount schemes to more families.
The reason for the climbing price of energy is a squeeze on wholesale gas prices around the world that began to take hold in 2021, caused in part by the rapid pace of the economic bounceback after the outbreak of the coronavirus pandemic at the start of 2020 led to a year of historically-low global energy consumption as businesses shut down and traffic came to a standstill.
The recovery has seen demand soar accordingly, with further strain placed on global supplies by the bitter winter experienced in the northern hemisphere in 2020/21 and by the balmy summer just experienced in Asia, particularly in China, where demand for air-conditioning units to cope with the sticky heat skyrocketed.
A relatively windless summer in Europe and droughts in Brazil also meant that the amount of green energy generated by turbines and hydropower for storage was lower than anticipated.
Russian gas giant Gazprom, while still honouring its long-term contractual commitments, declined to replenish its storage sites in Europe to the usual extent in order to protect itself against market fluctuations and the gradual closure of the Groningen fields in the Netherlands also had an impact.
Another factor coming into play, according to the International Energy Agency (IEA), was the delay to crucial infrastructure repairs because of the pandemic.
“The Covid-19 lockdowns pushed some maintenance work from 2020 into 2021, which weighed on supply at a time when demand was recovering,” the IEA said.
“The impact was particularly tangible in the UK and Norwegian areas of the North Sea Continental Shelf. In addition, unplanned outages at LNG liquefaction plants, upstream supply issues, unforeseen repair works, and project delays all further tightened the global gas market.”
Belatedly complicating the picture still further has been the outbreak of Russia’s war in Ukraine, which has already seen Germany block regulatory approval of the Nord Stream 2 pipeline as punishment for Kremlin aggression and Dmitry Medvedev, deputy chair of the Russian Security Council, respond with a sneer: “Welcome to the brave new world where Europeans are very soon going to pay €2.000 for 1.000 cubic meters of natural gas!”
As a result of this perfect storm of geopolitical and meteorological factors, wholesale gas prices have reportedly risen by 250 per cent since January 2021 and by 70 per cent in August alone, hitting a record price of 450p per therm in December.
The UK has been particularly hard-hit by all of this as 85 per cent of British homes are run on gas central heating and because we are both reliant on imports and have insufficient storage infrastructure in place to retain supplies.
The consequences of all of this are expected to be dire for around 22m households, prompting popular money-saving expert Martin Lewis to caution recently: “There are lots of people out there that can afford the increase and won’t like it, but there are also millions of people who will be thrown into fuel poverty, who will get close to having that choice between heating and eating.”
As Ofgem has done, Mr Lewis advised viewers of his ITV show to speak to their supplier about possible payment plans and suggested households check whether they are eligible for the government’s Warm Home Discount or Winter Fuel Payment and to defy the conventional wisdom to shop around for a better deal – at present, they are simply not available.
The price comparison site Moneysupermarket has reluctantly reached the same conclusion.
The BBC suggests a number of measures that together could help to reduce household bills by £118: dropping the temperature on the thermostat by one degree (worth £55 per year), using LED light bulbs only (£30), draught-proofing windows and doors (£25) and running the washing machine or dishwasher once less per week (£8).
