Households in Britain face a jump in energy bills from October after the regulator increased the energy price cap, taking the average gas and electricity bill to £3,549 the year.
In a blow to hard-pressed consumers already struggling with rising inflation, Ofgem approved the increase of £1,578 on the current figure of £1,971 for the average dual fuel tariff – an 80% increase.
The cap will be almost triple what it was a year earlier last October, when it rose to £1,277.
The announcement comes as households try to budget for a harsh winter. Rising energy bills have fueled rampant inflation, which topped 10% last month and some economists predict will rise to 18% from January.
The next limit will be introduced in January. Energy consultancy Cornwall Insight on Friday raised its forecast for this announcement to £5,387, from an earlier prediction of £4,650, while it raised its estimate for the April cap to £6,616, from £5,341 .
Ofgem said it would not give projections for the January measure because the market remains “too volatile”, but warned that prices “could worsen significantly until 2023”. The new limit will affect 24 million households, around 85% of the population.
This number includes around 4.5 million prepaid meter customers, who will pay an extra £59 a year on average.
Ofgem’s announcement will increase pressure on the government to urgently introduce more measures to help households this winter. The winner of the Conservative leadership contest between Liz Truss and Rishi Sunak is expected to announce a plan soon after the race ends on September 5.
Price limit chart
Jonathan Brearley, chief executive of Ofgem, said: “We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I speak to customers regularly and I know that today’s news will be very troubling for many”.
Mr Brearley said the Russian invasion of Ukraine and reduced gas supplies to Europe had driven up wholesale gas prices. He said this had left Ofgem with “no choice” but to reflect the cost increases in the price cap.
He added: “The government’s support package is providing help right now, but it is clear that the new Prime Minister will need to do even more to deal with the impact of the price rises coming in October and next year
“We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action.”
Brearley told BBC Radio 4’s Today program that “the truth is this is beyond the capacity of the regulator and the industry to address”. He said the next prime minister must “act urgently and decisively” to deal with the situation.
The Ofgem boss said winter petrol prices were 15 times higher than normal conditions and equivalent to paying £400-£500 to fill a car with petrol.
He advised people struggling with their bills to contact their energy company “proactively”.
A government spokesman said the civil service was “making appropriate preparations to ensure that any additional cost of living support or commitments can be delivered as soon as possible when the new Prime Minister is in place”.
‘Crisis hotspots’ chart
Consumer champion Martin Lewis called on the next Prime Minister to announce a new package as soon as possible. He said: “We have to hope that when we get someone in place, they will put forward a strong, firm, robust policy that we can all stand for that will feed people and warm people so that people don’t die because of this. price caps this winter. So I’m keeping my fingers crossed.”
Poorer households are more likely to be on prepaid meters and pay a premium
The price cap is not a maximum bill a household can be charged and only puts a cap on standing charges and the price charged per unit, so bills could be even higher for energy users above average. Lewis said “there’s nothing stopping someone from paying £10,000 a year”.
Isaac Delestre, a research economist at the Institute of Fiscal Studies, said the new cap means “typical bills this financial year will be 27% higher than expected when the last package of support in May”.
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The £3,549 benchmark will come into effect from 1 October 2022, but Ofgem said it is possible that some providers may start increasing the direct debit before that date to spread the cost.
The price cap was introduced in 2019 in an effort to protect customers from being ripped off. However, rising wholesale gas costs left a number of energy suppliers on the edge as they were squeezed by the cap, unable to pass those costs on to customers.
Earlier this month, the energy regulator confirmed that the cap would be reviewed quarterly instead of every six months. Ofgem said the change would allow it to “adjust much more quickly” to market volatility. Some industry observers have questioned whether the cap is viable in the long term.