Energy price cap likely to rise to £2,800 in October

25th May 2022

Ofgem boss Jonathan Brearley has told MPs the regulator expects the price cap to increase by more than £800 this October as the war in Ukraine continues to exacerbate the energy crisis.

Appearing before the Business, Energy and Industrial Strategy (BEIS) Committee both Brearley and former Ofgem Chief Executive Dermot Nolan apologised for not intervening in the retail market sooner to prevent widespread supplier failures.

The Resolution Foundation says that raising the energy price cap to around £2,800 in October could mean 9.6 million families across England could fall into fuel stress this winter. The analysis shows that the number of families living in fuel stress – defined as spending at least a tenth of their total budgets on energy bills alone – would rise from 5 to 9.6 million (or from 22 per cent to 40.5 per cent) this Winter off the back of the upcoming price cap rise.

Across the poorest thirty per cent of the population, up to three-quarters of families could fall into fuel stress.

The Foundation says the scale of rising fuel stress shows that the Chancellor needs to provide significant, targeted support for those at the sharp end of the cost-of-living crisis – and for the support to be delivered before the next price cap rise comes into effect.

Jonny Marshall, Senior Economist at the Resolution Foundation, said “UK households are set for another huge jump in the energy bills this October – just when the need to heat their homes grows – which could push up to ten million families into fuel stress.”

“The sheer scale and depth of Britain’s cost-of-living crisis means the Government must urgently provide significant additional support.”

“The fact that the crisis is so heavily concentrated on low-and-middle incomes households means it’s clear how the Government should target policy support. The benefits system is clearly the best route to support those worst affected in the short term – be that via an early uprating or lump sum payments to help poorer households get through the difficult winter ahead.”

“Looking beyond this winter, these households will also benefit most from cheaper renewable energy and lower consumption from better insulated homes – showing why Britain needs to massively step up its retrofitting programme.”

GoCompare’s Energy spokesperson, Gareth Kloet said “This increase in the Price Cap is much more than industry analysts had predicted and is another blow for the UK public, already struggling with inflation reaching a 40-year high, ever-increasing prices at the petrol pumps and rising household bills.”

“Recent research by GoCompare energy found that 83% of billpayers have seen their energy bills go up this year, and now to hear that the energy cap will be increased by more than £800 a year, is news that they can ill afford to hear, especially as we head into another winter, when many families may now have to decide between heating or eating.”

“This is also a body blow to the energy market, which has had one of the worst few years in its history and has seen an unprecedented number of energy suppliers go out of business. The situation is becoming untenable for all.”

“Unfortunately, there still aren’t any competitive energy deals on the market at the moment that can help alleviate these increasing costs, even going on a fixed deal at the moment could mean you end up paying more than the energy cap. So, the options for homeowners are limited.”

“There is no doubt that the next 12 months are going to be very difficult for lots of us, if you’re struggling to pay your energy bills now, this new announcement is only going to make things harder.”

Helen Morrissey, Senior Pensions and Retirement Analyst at Hargreaves Lansdown said  “These comments bring further misery to millions of people already struggling with the soaring cost of living. April’s hike in the energy price cap was hugely unwelcome but many people hoped to curtail their energy usage during summer. However, with another enormous increase on the cards as we head into the winter months many people will be wondering how they will cope.”

“People have been looking at how they can cut back their spending to meet these rising costs, but they are rapidly running out of options and many face difficult decisions about things as basic as choosing between heating and eating. When the biggest cost increases come from essentials like food and energy there is very little people can do to cut back.”

“The pressure is now on the government to outline how they are going to help people through this miserable time. Up until now its response has been limited to a council tax rebate and a repayable £200 reduction. These look woefully inadequate in the face of these potential new hikes and a much more robust response will be needed.”

“There is speculation swirling that the U.K. government could be drawing up a plan for a windfall tax in all but name. This has led to sharp falls in utility and energy focused stocks today, with Centrica falling by 8% and Drax by 15% by mid-afternoon.”

“Consumers have an anxious wait ahead of them to see if the government can indeed rise to the rescue in the difficult months ahead.”