The new default price cap on home energy bills will rise 54% in April to £ 1,971, regulator Ofgem announced this morning. The leap equates to £693 each year. The poorest customers on pre-payment meters will suffer a higher rise of £708, up to £2,017 per year.
Twenty-two million home consumers of gas and power will be covered by the retail cap, now at its highest level since its introduction by the independent regulator in 2018. Ofgem stressed that consumers struggling with their bills should contact their suppliers and advice agencies.
The 54% leap is at the higher end of industry observers’ expectations. A consensus had settled around a 46% hike.
Chancellor Rishi Sunak reacted to the record rise, promising help to all domestic customers. But his Labour opposite number Rachel Reeves denounced his mitigations as a ‘consume now, pay later’ ploy. And green energy body SolarEnergy UK said the government’s reaction was “not enough”.
From October, six months after the higher tariffs kick in, Sunak said a government-underwritten loan to suppliers will trim increased bills by £200. The loans will be repayable by consumers interest-free in equal instalments over five years.
Speaking in Parliament this morning, the Chancellor also unveiled a £150 free rebate will be available from April on Council Tax bands A to D, covering around 80% of English or Welsh homes.
Thirdly, local authorities will be offered a discretionary fund of nearly £150 million, designed to help poorer households living in higher Council Tax properties as well as those in bands A-D who are exempt from Council Tax.
Eligibility for the Warm Home Discount will expanded by almost a third, Sunak added, benefitting a total of 3 million vulnerable households. Sunak’s statement is here.
Ofgem currently updates the price cap twice a year, with an intention to curb excessive profiteering by energy retailers.
It confirmed it will tomorrow publish its new thinking on the mechanism’s frequency, coverage and calculation method. All were the subject of a one-month consultation the regulator ran in November. It announced some new measures in December.
Today’s announcement will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier quit the market.
Twenty-nine firms have exited in the past thirteen months, Ofgem today confirmed, causing 4.3 million domestic consumers to be re-allocated among suppliers.
Yesterday the regulator also confirmed withdrawal of supply licences from 10 gas retailers, and Better Business Energy, an electricity licensee.
“Greener is now cheaper” – Solar boss
Wholesale gas prices quadrupling in the last year drive today’s leap, Ofgem’s statement this morning points out.
“Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place”, Ofgem stated.
Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect.
Clean energy advocates Solar Energy UK responded by calling yet again for government to speed up Britain’s build-out of home-scale, low-cost renewables such as solar heat and power.
“Greener is now cheaper”, the body’s boss Chris Hewitt asserted. The PV trade body advocates:
- A nationwide green home retrofit programme to reduce energy costs for consumers
- 0% VAT on domestic renewable energy improvements such as solar & battery storage
- Further support to rapidly transition to zero carbon heating technologies such as solar thermal
- Removal of environmental levies from consumer bills to general taxation
“Extremely worrying for many people” – Ofgem’s Brearley
Announcing Ofgem’s hike, chief executive Jonathan Brearley said “: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event.
“Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future,” the chief regulator added.
The further measures include enabling Ofgem to update the price cap more frequently than once every 6 months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.
Such a hike could push another two million homes into fuel poverty, in addition to the four million already suffering, Derek Liquorice, MD of Utilita Energy and a former head of the government’s fuel poverty task force, told Radio 4’s Today programme this morning. He was speaking before Ofgem announced its figure.
The Utilita boss voiced industry worries that details of the new mechanism, and the government-backed debts likely to be offered to underpin suppliers’ solvency, could not be implemented in the weeks before 1 April.
Greg Jackson, CEO and founder of challenger supplier of renewables Octopus, welcomed ”
the “huge” increase in the price cap.
“We speak to 30,000 customers a day and know first-hand that many people are struggling to pay their bills this winter”.
“It’s going to get worse before it gets better, so we will continue to work with the government and do whatever we can to help customers until the crisis is over”, the Octopus boss added.