UK energy bills to rise by 80% in October as regulator announces hike

LONDON – Britain’s energy regulator announced on Friday it would raise the main cap on consumers’ energy bills from £1,971 a year to an average of £3,549, as campaign groups, think tanks and politicians urged the government to tackle the life-energy crisis. .

The standard charge for their combined electricity and gas bill in England, Scotland and Wales limits the price caps energy suppliers can bill household customers, but is recalculated by Ofgem throughout the year to reflect wholesale market prices and other industry costs.

It covers about 24 million households. The 4.5 million households on prepayment schemes face increases from £2,017 to £3,608.

The cap does not apply in Northern Ireland, where suppliers can raise prices at any time after receiving approval from a separate regulator.

Gas prices have risen to record levels over the past year as high global demand has been exacerbated by low gas storage levels in Europe and a drop in pipeline imports from Russia following its invasion of Ukraine. This is also Electricity prices increased.

Earlier this month, Ofgem announced it would recalculate the cap every three months instead of every six months to reflect current market volatility.

Consultancy Cornwall Insight estimate The cap could rise to £4,649.72 in the first quarter of 2023 and rise to £5,341.08 in the second quarter before falling slightly to £4,767.97 in the third quarter.

That’s still higher than the average £1,400 annual bill in October 2021 and the current £1,971 cap.

‘a disaster’

In July, the government announced it would give all households a £400 grant to help with bills over six months from October, with an additional £650 lump sum payment going to 8 million vulnerable households. Some suppliers have also announced support packages for customers.

However, it has been widely criticized for failing to address the scale of the problem, which has occurred comparison The Covid-19 pandemic and the financial crash of 2008 took its toll on the population.

“A disaster is looming this winter as rising energy bills threaten to cause serious physical and financial damage to households across Britain,” Jonny Marshall, senior economist at the Resolution Foundation think tank, said ahead of the announcement.

“We’re on track to see thousands of people completely cut off their power, while millions more will be unable to pay bills and rack up unmanageable arrears.”

A number of strategies have been put forward by politicians, consultants and suppliers themselves to deal with the crisis, but ongoing UK leadership election This means that no new policy has been announced even as bills continue to rise.

The candidates, Liz Truss and Rishi Sunak, have both called for extra support for homes and businesses but said no decision would be made until a new prime minister is elected on September 5.

At a leadership Thursday night, Sunak said he would provide more “direct financial assistance” to vulnerable groups.

Truss, the current favorite to win the competition, reiterated previous comments about wanting to use tax cuts to ease the pressure on households, rolling back recent increases in National Insurance Tax and suspending the green energy levy on bills.

Plan required

Options on the table include freezing the price cap at its current low level – which energy suppliers say must be financed through a government-supervised funding package to prevent industry volatility – or allowing the price cap to rise. and increasing domestic support.

What is the customer group? Thursday said the government needed to increase household payments from £400 to £1,000 to prevent millions of people from falling into financial crisis, with an extra minimum payment of £150 for the lowest-income households.

The opposition Labor Party has said it will freeze the cap from April to October over the winter A recently introduced windfall tax On oil and gas companies, scrapping the universal £400 payout and finding other savings to cap freezes over the winter.

Ofgem chief executive Jonathan Brearley said any response would need to “match the scale of the crisis we face” and require regulators, government, industry, NGOs and consumers to work together.

“We know the impact these price rises will have on homes across Britain and consumers will now have to make difficult decisions,” Brearley said.

“The government’s support package is helping now, but it is clear that the new Prime Minister will have to do more to deal with the impact of the price hikes in October and next year.

“We are working with ministers, consumer groups and industry on some options for the incoming Prime Minister that will require immediate action.”

“The new prime minister will need to think unimaginably in terms of the policies needed to get enough support where it’s needed most,” said Marshall of the Resolution Foundation.

“An innovative social tariff can provide broadly targeted support but involves major distributional challenges, while a price ceiling freeze leaves those least in need too far. This problem can be overcome by imposing a flat tax on high earners – an unthinkable strategy in the context A leadership debate, but a practical solution to the reality facing families this winter.”

CNBC has reached out to the government for comment.

Gas purchase price

Emma Pinchbeck, chief executive of the trade association for the energy industry Energy UK, told the BBC on Friday morning that the industry would continue to call for government intervention to help both consumers and the impact on the wider economy.

“Mostly [suppliers] Throw in negative margins and that’s one of the reasons we’ve lost 29 suppliers from the market over the years. So when you look at this and the scale of this crisis, we’re talking about an industry that, even with a maximum charge for gas procurement costs, is not able to meet much more than what is being helped.”

Pinchbeck said the industry favored a deficit tariff plan that would allow suppliers to keep prices at their current level and cover their costs through debt because it was the fastest to implement.

A broader challenge

Faced with varying wholesale prices dependent on Russian gas, European governments are coming up with their own support packages for citizens.

France has fully nationalized energy supplier EDF at an estimated cost of 9.7 billion euros and raised electricity tariffs by 4%.

German households will pay about 500 euros ($509) more on their annual gas bills by April 2024 to help utilities cover the cost of replacing lost Russian supplies, with electricity prices also set to rise. The government is discussing a sales tax exemption on the levy and an aid package for poor families, but has been criticized for failing to announce enough support.

Both Italy and Spain have used windfall taxes as a combination of handouts to needy families and caps on bills that rise to unaffordable levels.

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