Millions of UK households to pay more for energy from April

The regulator said the move was largely a result of changes in wholesale energy prices, which fell sharply last year in the wake of the first lockdown.

The level of the price cap fell by £84 in October to its lowest level yet for the current winter period.  Demand for energy has since recovered which has pushed wholesale prices back up to more normal levels. The price cap will increase by £96 to £1,138 for 11 million default tariff customers, and by £87 to £1,156 for 4 million pre-payment meter customers.

It was originally introduced by former Prime Minister Theresa May to protect consumers from “rip-off” prices by energy firms and came into effect in January 2019.

In exceptional circumstances, energy firms can avoid the price cap by demonstrating that they use only renewable energy and can trace it back to its source.

Ofgem adjusts the level of the cap up or down twice a year to reflect the costs of supplying electricity and gas for suppliers.

“Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic. We have carefully scrutinised these changes to ensure that customers only pay a fair price for their energy,” said Ofgem chief executive Jonathan Brearley. “The price cap offers a safety net against poor pricing practices, saving customers up to £100 a year, but if they want to avoid the increase in April they should shop around for a cheaper deal.”

Ofgem calculates the cap using a formula that includes wholesale gas prices, energy suppliers network costs and costs of government policies, such as renewable power subsidies.

Citizens Advice acting chief executive Alistair Cromwell has called the new increase “a heavy blow to a lot of households”, and said it would come as benefits are also slashed for many.

“For many people on Universal Credit it will come at the same time as the £20 a week increase to the benefit is set to end,” he said. “With a tough jobs market and essential bills rising, now is not the time for the government to cut this vital lifeline”.

Emma Pinchbeck, the chief executive of Energy UK, a trade body for energy suppliers, said that the price cap is set in a way that is meant to be fair for both customers and suppliers.

“Today’s rise reflects that the cost of buying energy – by far the biggest part of the bill – has risen significantly over the last few months. It also includes a greater allowance for debt given the difficulties many customers are facing in paying bills at present,” she said.

Earlier this week Ofgem said it would include a provision worth £23.69 in the latest cap level to enable suppliers to begin recouping costs relating to the coronavirus pandemic, such as money lost due to defaults on payments.