Britons face shock hike to energy cap

Heating bills to rise for millions in Ofgem move

ELEVEN million households face a shock £100 rise in heating bills as Ofgem is set to announce an increase to its new energy cap just weeks after it came into force.

The industry watchdog will make its announcement on Thursday at a time when winter weather is already sending energy bills through the roof.

The cap was introduced on January 1 in a bid to protect households which are being overcharged by up to £1billion for gas and electricity, with the poor, elderly and vulnerable often hit hardest.

Ofgem said the cap would save the typical household around £75 a year by limiting average dual-fuel bills to £1,137 a year.

Now experts say that saving will be more than wiped out by the upcoming increase, putting more pressure on households.

The new, revised cap comes into force on April 1. It is reviewed every six months, which means there is a possibility that energy bills could increase again on October 1.

Richard Neudegg, head of regulation at comparison site uSwitch.com, said the current cap has brought almost no benefits. “It was supposed to save people £75 but seeing that it will only last for three months the actual saving will be closer to £19.”

He predicted an increase of between £80 and £100 from April, which will hit millions who are on their supplier’s default standard variable tariff (SVT), either because they have never switched energy supplier, or have not done so recently.

Neudegg said the energy cap only restricts average rates and charges, it does not cap how much you actually pay so households using more energy will exceed the new cap.

He said the original cap was a political fix that is coming unstuck: “It was set at a low price to make it seem a success but now the true cost is coming through.”

Sally Jaques, head of energy at the auto-switching energy service WeFlip.com, said three months after its introduction the cap is set to deliver one of the single biggest energy price increases the market has seen for years: “If providers reprice their SVTs accordingly they will more than wipe out any savings from the cap since January.”

Before the cap was introduced the Big Six suppliers competed on price, with their SVTs varying by around £50 to £100 a year. “Now they are likely to all rise as one, to the level of the cap.”

The higher cap reflects wholesale price rises and bills would have increased anyway, Jaques added. “However, the substantial price hike so soon after the cap was set will do little to convince consumers that it is making a difference.”

Jaques warned against relying on the cap as households could save far more money by shopping around for a cheaper supplier.

Ofgem chief executive Dermot Nolan recently flagged up a likely increase to the cap, which was “potentially a significant one” due to rising wholesale energy costs. Nolan insisted this reflects changes in the actual costs of providing gas and electricity, so customers will still be paying a fair price.