Energy bills for 15 million households will rise by at least 12 per cent from October after record high gas costs led the regulator to increase the price cap.
The biggest bill increase in a decade will mean 11 million households on standard variable or default tariffs pay an extra £139 a year, taking their annual bill to £1,277 based on average usage.
Ofgem said that gas bills would rise by 17 per cent and electricity bills by 8 per cent, leading to a 12 per cent rise in a typical dual fuel bill.
Four million households with prepayment meters will see an increase of £153 a year, or 13 per cent, from October, taking a bill for a typical household to £1,309.
Consumer groups said the increase was “devastating” and that many families would face “a perfect storm” because the rise would coincide with the end of both the furlough scheme and the Universal Credit uplift.
Advertisement
It is the second time the regulator has increased the cap this year, after a rise of 9 per cent or £96 a year to standard tariffs from April.
The regulator said the latest rise was driven by higher wholesale gas and electricity costs, adding: “Gas prices have risen to a record high in Europe due to a recovery in global demand and tighter supplies.” Analysts at Cornwall Insight, the energy market observers, said that if wholesale prices stayed at present levels the cap could be increased again to £1,300 a year, when Ofgem updates it next April.
The government introduced the energy price cap in 2019 to prevent suppliers from ripping off households who stay on standard variable or default tariffs because they do not shop around for cheaper deals. The policy extended a cap that was already in place for homes with prepayment meters.
Ofgem updates the cap twice a year to reflect the costs to suppliers. The regulator and the government estimate that the cap is saving households between £75 and £100 a year because suppliers would be charging even more without it. Most big energy suppliers have been charging the maximum or close to it, and are expected to continue to do so.
The new cap should allow an efficient supplier to make an extra £2.49 profit per household per year but Ofgem said that most suppliers were not making any profit in practice.
Advertisement
Peter Smith, of National Energy Action, the fuel poverty charity, called on the government and the regulator to do more to help the most vulnerable households. “Millions of household budgets are already stretched to the limit and this massive increase could not be coming at a worse time,” he said.
Citizens Advice and the Resolution Foundation urged the government to rethink the £20 universal credit cut.
James Plunkett, executive director of Citizens Advice, said: “This price hike could lead to a perfect storm for families this autumn, hitting people at the same time as a Universal Credit cut and the end of furlough. Families on Universal Credit are far more likely to already be in energy debt.”
How standard tariff costs could rise
Single pensioner in flat/maisonette/bungalow
£1,127 OLD
£1,267 NEW
£140 INCREASE
Family in 3-bed terraced house
£1,238 OLD
£1,389 NEW
£151 INCREASE
Advertisement
Family in large 4-bed detached house
£1,840 OLD
£2,078 NEW
£238 INCREASE
Young professional couple in flat
£1,050 OLD
£1,170 NEW
£120 INCREASE
Source: Octopus Energy estimates
