Britain’s energy regulator announced on Friday it would raise its main cap on consumer energy bills to an average of £3,549 from £1,971 a year, as campaign groups, think tanks and politicians call on the government to tackle the cost of living crisis. .
The price cap limits the standard fee that energy suppliers can charge local customers against the electricity and gas bill collected in England, Scotland and Wales, but is recalculated by Ofgem throughout the year to reflect wholesale market prices and other industry costs.
It covers about 24 million families. 4.5 million families on prepaid plans face an increase from £2,017 to £3,608.
The cap does not apply in Northern Ireland, where suppliers can increase prices at any time after obtaining approval from a different regulator.
Gas prices have soared to record levels over the past year with rising global demand in Europe due to lower levels of gas storage and lower pipeline imports from Russia in the wake of its invasion of Ukraine. This also Electricity price increase.
Earlier this month, Ofgem announced that it would recalculate the cap every three months instead of every six months to reflect current market volatility.
Cornwall Insight Consulting Forecasting The cap could rise to £4,649.72 in the first quarter of 2023 and to £5341.08 in the second quarter before dropping slightly to £4,767.97 in the third quarter.
This is still above the average annual bill of £1,400 in October 2021, and the current maximum of £1,971.
In July, the government announced it would pay a £400 grant to all families over six months from October to help with bills, with an additional £650 one-time payment going to 8 million vulnerable families. Some suppliers also advertise customer support packages.
However, this has been widely criticized for failing to address the scale of the problem, which was comparison With the Covid-19 pandemic and the financial meltdown of 2008 in terms of its impact on the population.
“Disaster to come this winter as rising energy bills could cause serious physical and financial damage to families across Britain,” said Johnny Marshall, chief economist at the Resolution Foundation, before the announcement.
“We’re on our way to see thousands of people cut off completely, while millions won’t be able to pay the bills and uncontrollable arrears build up.”
Many strategies to tackle the crisis have been put forward by politicians, consultants and suppliers themselves, but they are ongoing UK leadership elections It means that no new policy has been announced despite a looming rise in bills.
The two candidates, Liz Truss and Rishi Sunak, spoke of the need to provide additional support to families and businesses, but said no decision would be made until the new prime minister was elected on September 5.
At Thursday night’s leadership festivities, Sunak said he would provide more “direct financial support” to vulnerable groups.
Truss, the current contest winner, reiterated previous comments about wanting to use tax cuts to reduce pressure on households, reversing the recent increase in the National Insurance tax and the suspension of green energy charges on bills.
Options on the table are believed to include freezing the price ceiling at its current low level – which energy suppliers argue should be financed through a government-supervised financing package in order to prevent destabilizing the industry – or allowing the price ceiling to rise and extending domestic support.
Which consumer group? He said on Thursday that the government needed to extend family payments from £400 to £1,000, with an additional one-time minimum payment of £150 to low-income families, to prevent millions from falling into financial hardship.
The opposition Labor Party has said it will freeze the April-October hat during the winter by extending the period Recently introduced windfall tax Oil and gas companies should cancel the £400 global payments and find other savings to freeze the cap through the winter.
Jonathan Brierley, chief executive of Ofgem, said any response was necessary “to match the scale of the crisis facing us” and to involve regulators, government, industry, NGOs and consumers working together.
“We know the huge impact this price cap increase will have on households across Britain and the tough decisions consumers will have to make now,” Brierley said.
“The government support package is helping at the moment, but it is clear that the new prime minister will need to do more work to address the impact of the price hikes that will come in October and next year.
“We are working with ministers, consumer groups and industry on a range of options for the next prime minister that will require urgent action.”
“The new prime minister will need to think about the unthinkable in terms of policies needed to get adequate support to where it is most needed,” said Marshall of Resolutions.
“An innovative social tariff can provide targeted support on a broader scale but presents huge delivery challenges, while freezing the cap on the price gives much to those who need it most. This problem can be overcome by imposing a solidarity tax on high-income earners – a policy It is unimaginable in context from the leadership debates but it is a practical solution to the reality families are facing this winter.”
CNBC has contacted the government for comment.
Emma Pinchbeck, chief executive of the UK Energy Industry Trade Association, told the BBC on Friday morning that the industry would continue to call for government intervention to help consumers and influence the broader economy.
“Most [suppliers] It has a negative margin and this over the past few years is one of the reasons why we have lost 29 suppliers from the market. So when you look at this and the scale of this crisis, we’re talking about something much bigger than what the industry can handle, despite the help that’s been given, despite charging the maximum possible cost of buying gas.”
Pinchbeck said the industry favored a deficit tariff scheme that would allow suppliers to keep prices at their current level and cover their costs with a loan because it was the fastest to implement.
Faced with the same high wholesale prices coupled with varying degrees of dependence on Russian gas, European governments are offering their own support packages to citizens.
France has completely nationalized energy supplier EDF at an estimated cost of €9.7 billion, and has capped electricity tariff increases of 4%.
German households are set to pay around 500 euros ($509) more on annual gas bills through April 2024 through a tax to help utilities cover the cost of replacing lost Russian supplies, with electricity prices also rising. The government is discussing a sales tax exemption on the tax and a relief package for poor families, but it has also been criticized for failing to announce adequate support.
Both Italy and Spain have used windfall taxes to fund a range of aid to families in need and limits on bills that rise to unsustainable levels.
“Infuriatingly humble analyst. Bacon maven. Proud food specialist. Certified reader. Avid writer. Zombie advocate. Incurable problem solver.”