Energy price rises to cost UK billions in subsidies

Energy prices for millions of Britons will soar from April after the regulator hiked its price cap by 54%, forcing the government to stump up £9bn (R187bn) of fresh support for hard-hit households.

Responding to the record global gas prices that have sent almost 30 British energy suppliers to the wall, energy regulator Ofgem said the price cap on the most widely used tariff would rise to £1,971 a year from April, the same month that taxes rise and general inflation is set to peak at 6%.

The Bank of England also raised interest rates again on Thursday, adding to pressure on households.

Finance minister Rishi Sunak said he had no option but to intervene to take the “sting out of a significant price shock” for millions of people.

The government will now provide state-backed loans to energy providers to spread the higher costs over five years, worth £200 to consumers, while a £150 rebate on local taxes will also apply to about 80% of households in England.

Governments across Europe have spent tens of billions of euros to shield consumers from recordhigh energy prices, either removing taxes or supporting the needy, after gas and power costs spiked when economies reopened from lockdowns.

In Britain, a six-month price cap has limited the immediate impact on consumers, forcing the pain on to suppliers instead, with more than 25 going out of business since the start of 2021.

Analysts said Sunak’s attempt to delay passing on the full hit to consumers was a gamble, with prices forecast to be high well into next year and beyond, and with European gas supplier Russia locked in a dispute with the West over Ukraine.

Jonathan Brearley, CEO of Ofgem, said the energy market had seen an 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,” he said.

Unite, the country’s biggest union, said the new price cap would turn the cost-of-living crisis into a catastrophe for millions. “This will plunge at least one in four families in Britain into fuel poverty,” it said.