Energy bills to rise by at least £139 for millions of households

Energy regulator Ofgem has announced that the energy price cap will increase from 1st October for the 15 million customers it protects. Those on default tariffs paying by direct debit will see an increase of £139 from £1,138 to £1277. Prepayment customers will see an increase of £153 from £1,156 to £1309.

The regulator says that the increase is driven by a rise of over 50% in energy costs over the last six months with gas prices hitting a record high as the world emerges from lockdown. Surging global fossil fuel prices are already driving up inflation for consumers, making fixed-rate energy tariffs not covered by the price cap, as well as petrol and diesel more expensive.

The price cap offers a safety net for customers who haven’t switched by making sure that suppliers only pass on legitimate costs. Those on default tariffs are saving an estimated £75-£100 or £1 billion every year as a result.

The regulator says that the biggest and most unpredictable factor is the wholesale cost of electricity and gas paid by suppliers and influenced by global markets. This accounts for roughly 40% of the overall price cap level. Gas prices have risen to a record high in Europe due to a recovery in global demand and tighter supplies. This is increasing the cost of heating homes and pushing up electricity prices. Last winter, the level of the cap fell by £84 after passing onto customers the savings from lower wholesale energy costs as countries went into lockdown and demand fell.

Jonathan Brearley, Chief Executive of Ofgem, said “Higher energy bills are never welcome and the timing and size of this increase will be particularly difficult for many families still struggling with the impact of the pandemic.”

“The price cap means suppliers only pass on legitimate costs of supplying energy and cannot charge more than the level of the price cap, although they can charge less. If you’re struggling to pay your bill you can get in touch with your supplier to access the help that’s available and if possible, shop around for a better deal.”

“We have put tough rules in place to ensure suppliers treat customers who are struggling with bills fairly, and welcome their commitment to reach out to those who most need help this winter. Where help is not forthcoming, we will not hesitate to act.”

“I appreciate this is extremely difficult news for many people, my commitment to customers is that Ofgem will continue to do everything we can to ensure they are protected this winter, especially those in vulnerable circumstances.”

Ofgem adjusts the price cap twice a year based on the latest estimated costs of supplying energy.

Commenting on the announcement Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust, said “Increasing the energy price cap could not come at a worse time for the many households struggling to meet day-to-day costs. More than 20 percent of the people we help at National Debtline are already in energy arrears – any increase in cost is likely to push more into the red.”

“With the rise in the price cap and increasing energy prices this will be a challenging winter for many people. Energy suppliers need to be proactive in looking for early signs that customers are struggling to pay and to offer the help they need. This issue is not for suppliers alone and the Government needs to work with Ofgem and the energy industry to ensure there is proper support for the increasing number of people unable to pay their bills.”

Alex Hasty, Energy Expert, at comparethemarket.com, said “Millions of households have endured successive energy price increases, with the price cap now set to grow by £235 in a year. The more than 20% increase goes to show that the price cap level is not something households can rely on to protect them from overpaying for their energy.

“Affected households have until October 1 to take action before the new price cap level comes into effect. Despite energy deals being at the highest level in nearly two-and-a-half years, a significant amount of money can still be saved by switching to a new tariff. ”