Energy costs to rise for millions of households

Energy regulator, Ofgem has announced that from 1st April 2021 the price cap will rise and return to pre-pandemic levels, principally as a result of changes in wholesale energy prices.

The regulator said the price cap for default domestic energy deals would be raised to cover suppliers’ extra costs. Wholesale prices fell sharply last year in the wake of the first lockdown, the level of the price cap fell by £84 in October to its lowest level yet for the current winter period.

Demand for energy has since recovered which has pushed wholesale prices back up to more normal levels. For six months from 1st  April the price cap will increase by £96 to £1,138 for 11 million default tariff customers, and by £87 to £1,156 for 4 million pre-payment meter customers.

The price cap protects consumers who have not switched energy supplier by ensuring they pay a fair price for their electricity and gas. Ofgem adjusts the level of the cap up or down twice a year to reflect the costs of supplying electricity and gas for suppliers.

Households on default tariffs are saving an estimated £75-£100 a year or £1 billion in total on their energy bills as a result.

Jonathan Brearley,  Chief Executive of Ofgem, said “Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic. We have carefully scrutinised these changes to ensure that customers only pay a fair price for their energy.”

“The price cap offers a safety net against poor pricing practices, saving customers up to £100 a year, but if they want to avoid the increase in April they should shop around for a cheaper deal.

“As the UK still faces challenges around COVID-19, during this exceptional time I expect suppliers to set their prices competitively, treat all customers fairly and ensure that any household in financial distress is given access to the support they need.”

“The government and Ofgem have been working with the energy industry and consumer groups to support customers through this difficult time and I urge anyone worried about paying their energy bills to contact their supplier and access the help available.”

For the default tariff price cap level starting in April, Ofgem has also allowed suppliers to claim £23 to cover higher levels of bad debt from more customers being unable to pay their energy bills due to the impact of Covid-19.

This will ensure suppliers can continue to supply energy and protect their customers, especially those in vulnerable circumstances.

Suppliers are required to provide emergency credit to customers struggling to top up their pre-payment meters, put those who are behind on their bills on affordable repayment plans and should not disconnect their customers.

Many have gone further in providing support over the last year, for example helping pre-payment meter customers who are shielding to top up.

Commenting on the increase to the energy price cap in April Peter Earl, Head of Energy, comparethemarket.com, said “Raising energy costs for millions of households by an average of £96 is an extraordinary move in the current environment. It calls into question the whole point of a price cap which was designed to protect the most vulnerable households.”

“Many are already struggling with the financial impact of the pandemic – our research shows that nearly three out of 10 (29%) families with children at home struggle to pay their bills every week – and this announcement coincides with the shock of energy bills being received after a winter spent in lockdown. The additional £23 hit announced earlier this week to recover the costs of unpaid bills in the cap’s ‘Adjustment Allowance’ ignores the fact that many are still in a very difficult and precarious financial situation. It undoes the good work by the industry in supporting customers through the pandemic, which is far from over.”

Alistair Cromwell, Acting Chief Executive of Citizens Advice, said “This increase will be a heavy blow to a lot of households. For many people on Universal Credit it will come at the same time as the £20 a week increase to the benefit is set to end.”

“With a tough jobs market and essential bills rising, now is not the time for the government to cut this vital lifeline.”