Energy bills for millions will increase by at least £139 as Ofgem raises price cap

ITV News Business and Economics Editor Joel Hills has the details of the changes and what it means for bill payers

Energy bills for 15 million households will increase by at least £139 in a record high from October due to a rise in wholesale prices, the UK's energy regulator has announced.

Watchdog Ofgem said on Friday that energy customers on default tariffs paying by direct debit will see the sharpest jump in prices since the cap was introduced, taking average bills to £1,277.

Pre-payment customers will see costs rise by £153, from £1,156 to £,1309.

The new rate will come into force from October 1 for customers on their supplier’s default tariffs.

Regulator Ofgem sets its default energy price cap every six months. The cap is not how much your bills will be capped applies to the price a supplier charges for each unit (kWh) of electricity and gas used, and a customer's standing charge.

Charities warned that the price cap is the "perfect storm" at a time when families are already struggling with the economic fallout of the pandemic and with many more people working from home.

Single parent Anthony is worried how the price hike will hit his family

The increase has been driven by a rise of more than 50% in energy costs over the last six months, with gas prices hitting a record high as inflation jumped amid the easing of pandemic restrictions, Ofgem said.

Chief executive Jonathan Brearley 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.

“The price cap means suppliers only pass on legitimate costs of supplying energy and cannot charge more than the level of the price cap, although they can charge less.

“If you’re struggling to pay your bill you can get in touch with your supplier to access the help that’s available and, if possible, shop around for a better deal."

ITV News Business and Economics Editor Joel Hills explains why some of these energy companies cannot reduce these upcoming price hikes for customers

Industry-watchers had expected Ofgem to hike the price cap by around £150 from its current level of £1,138 for an average household’s gas and electricity bills.

Households that shop around and sign up to fixed plans with suppliers are not subject to the price cap. Customers are often able to save hundreds of pounds by choosing a fixed tariff over the default.

The regulator reviews the price cap once every six months, and changes it based on the cost that suppliers have to pay for their energy, cost of policies and operating costs, among other things.

Responding to the price rise, James Plunkett, of Citizens Advice, said: “This price hike could lead to a perfect storm for families this autumn, hitting people at the same time as a Universal Credit cut and the end of furlough. It’s particularly worrying given families on Universal Credit are far more likely to already be in energy debt.

“With bills rising and incomes falling, many families will find it hard to escape. For many, debt will be the inevitable consequence.

“It all adds to the growing case to rethink the Government’s planned cut to Universal Credit and keep this lifeline which has been vital to keeping so many afloat.”

Charities warned the increase to energy price cap "could not come at worse time" and will cause to "further misery" for low-income and vulnerable customers.

Peter Smith, director of policy and advocacy at fuel poverty charity National Energy Action (NEA), said: "As well as a significant rise in general inflation – driving up spending on other essentials such as food – millions of people will see a reduction in their incomes, as furlough winds down and the uplifts to Universal Credit are likely to be withdrawn. Many people will also still be using more energy working from home.

“This toxic combination of high prices, reduced incomes and leaky, inefficient housing which uses far more energy than necessary, will lead to increases in utility debt and badly damage physical and mental health.”