Energy price cap increase will see government support rise to £5bn a month
Image credit: Mike Taylor/Dreamstime
Britain's energy regulator, Ofgem, has announced that the price cap will rise to an annual level of £4,279 in January – an all-time high – but households will remain protected for the time being under the government’s Energy Price Guarantee (EPG).
This will see the government spending up to £5bn a month on subsidies to billpayers from January as it is obliged to keep bills for the average household under £2,500, rising to £3,000 in April.
The price cap sets a maximum that suppliers can charge per unit of energy to someone on a dual-fuel tariff for both gas and electricity prices.
It was a measure introduced under Theresa May’s government, with the goal of preventing excess profiteering by the electricity companies, particularly in times of crisis.
It used to be adjusted biannually to reflect movements in the wholesale price of energy and prevent energy companies from trading at a loss. Following a raft of energy firm collapses last year in the wake of soaring wholesale costs, Ofgem moved to quarterly updates of the cap.
Cornwall Insight, an energy research firm, said the increase may cause concern for the government as it will be forced to “shoulder the billions of pounds needed to compensate suppliers the difference”.
Although less than 5 per cent of the gas the UK imports come from Russia, it is still affected by prices rising in global markets as demand in Europe increases.
Prior to the attempted invasion of Ukraine, the continent imported around 40 per cent of its natural gas from Russia. Since the war, the EU has made a commitment to divest itself of Russian gas and has begun to look for alternative trading partners in the US and Morocco.
The next quarterly price cap update will be on 27 February 2023, just over a month before the EPG rises to £3,000 for households.
In the Autumn Budget earlier this month, Chancellor Jeremy Hunt also announced cost-of-living payments of £900 for those on means-tested benefits, £300 to pensioners, £150 to those on disability benefits and doubling support for those on LPG or heating oil.
Rocio Concha, Which? director of policy and advocacy, said: “The news that the energy price cap will hit £4,279 from January will be hugely worrying for consumers, but they should remember that their bills are protected against this price increase by the government’s energy price guarantee scheme - which caps the amount that households can be charged to around £2,500 for the average household until April.
“Which? is also concerned that hundreds of thousands of customers on traditional prepayment meters have not yet claimed the government support that is available.
“Energy firms and the government must work to understand why so many Energy Bill Support Scheme vouchers have not yet been redeemed, and ensure that customers on these prepayment meters – who are more likely to be vulnerable and on lower incomes – are able to access this vital support.”
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