Record rise in energy price cap may add £139 to bills

AROUND 15million households will see their energy bills soar by at least £139 a year under a record price cap increase.

The steep rise will kick in this October and take the average annual bill for customers paying by direct debit to £1,277.

Households with pre-payment meters will also see an £153 increase – with the average bill jumping to £1,309.

It is the second price rise in less than a year and the sharpest jump in bills since the cap was introduced in 2019.

This is also the first time the price cap has risen ahead of winter when the colder weather means families will already be feeling the strain of higher heating bills.

Watchdog Ofgem said the move was because of soaring wholesale costs – the amount energy businesses must pay for gas and electricity – with gas prices hitting a record high after lockdown. But campaigners have criticised the increase.

Peter Smith, of fuel poverty charity National Energy Action, said: ‘Millions of household budgets are already stretched to the limit and this massive increase could not be coming at a worse time.’

Citizens Advice also warned that the rises could create a ‘perfect storm’, hitting families at the same time as the furlough scheme winds down and Universal Credit is cut.

Almost two million people are already behind on their bills, the charity estimates, while nearly a quarter are worried about how they will pay.

According to Ofgem, the cap exists to protect customers from rip-off prices and has saved households an estimated £1billion a year.

But it cannot prevent energy suppliers from passing on legitimate costs such as that spent on gas and electricity. The wholesale cost of gas and electricity paid by suppliers accounts for roughly 40 per cent of household bills.

Fixed tariffs are not affected by changes to the price cap and are typically cheaper.

But even these deals have leapt in price over the past year, reducing how much households can save by switching from default tariffs. The cheapest fixed tariff currently costs a typical home £1,036 a year, according to comparison site ComparetheMarket. This is £102 cheaper than the average standard tariff set at the current price cap of £1,138 – a saving that rises to £241 when compared with the new cap of £1,277.

Yet, for customers who are already in debt, switching is often impossible, which means the vulnerable will be hit hardest by price rises. The top ten cheapest deals are also only available to online customers.

Tom Lyon, a director at comparison site Energyhelpline, said: ‘Energy companies will argue that their margins have been squeezed and they are losing money due to the rapid rise of wholesale costs this year.

‘However, these complaints should fall on unsympathetic ears as most households pay through the nose for their gas and electricity.’

Jonathan Brearley, chief executive of Ofgem, said: ‘Higher energy bills are never welcome and the timing and size of this increase will be particularly difficult for many families still struggling with the impact of the pandemic.’

He urged customers who are struggling to pay their bill to get in touch with their supplier.

The latest price cap rise comes months after it saw an increase of £96. This means that customers will have seen bills rise by £235 in less than a year.

If wholesale prices remain high, bills could hit £1,300 a year by next summer, Cornwall Insight analysts warned.

‘Could not come at a worse time’