Energy price cap rises increasing bills for families across UK, Ofgem announces

How much support will households get? Consumer Editor Chris Choi explains

A new energy price cap coming into effect in April will see customers paying almost £700 more per year to power their homes, Ofgem has announced.

The energy regulator confirmed the price cap will rise by 54% from April 1, affecting around 22 million customers.

People paying default tariffs by direct debit will see an increase of £693 from £1,277 to £1,971 per year, while prepayment customers will see an increase of £708 from £1,309 to £2,017.

"It will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier exited the market," said Ofgem in an update.

The energy regulator said the steep price hike will be "extremely worrying for many people" and advised customers who are struggling to contact their supplier to access support available.

Following the announcement, Chancellor Rishi Sunak said the government will “step in” to help households directly manage “incredibly tough” energy costs.

To help remove the “sting” from the energy crisis, Mr Sunak told MPs the "vast majority" of households in England will receive £150 of support through council tax rebates for homes in bands A to D. They will not need to pay this back.

All domestic customers will also get an up front discount on their energy bills worth £200 from October. Households will repay this in £40 installments over five years.

As Correspondent Rachel Younger found out in Sheffield, people now face a fully-fledged cost of living crisis

Among those affected by the soaring energy bills is Nicole Reece, a 36-year-old trainee paramedic from Kent who fears the price hikes could leave her family on the breadline.

The mother-of-four told ITV News that the rising costs mean her family have been forced to give up their car and cut down on luxuries, as they are now "terrified of putting the heating on". "At the time when we made the decision for me to go back to education, this wasn't an issue. My husband was able to support us financially, but now that's not the case," she said.

Ms Reece added that her family have now bought a fireplace just to try and keep costs down.

'We haven't got the luxuries that we did have prior to the increased charges,' Ms Reece said

As consumers across the country are hit by rising costs, devolved nations have been offered some support, with be £565 million provided for their own energy support packages.

Charity Age UK said the chancellor's package "simply does not go far enough" and that older people on low and modest incomes will be “badly shaken” by the price cap increase.

It added: “What does the Government expect them to do? Forgo their heating, ration their food or go into debt? These are the only choices that millions of the less fortunate will face, if they have no savings to draw on or family to help them out...

“There’s no doubt it will lead to many more turning their heating down or off altogether, because they will know these price surges and the Chancellor’s inadequate response signals a crisis in their personal finances, with no end apparently in sight."

Shadow Chancellor Rachel Reeves said criticised Mr Sunak's measures as a "buy-now-pay-later scheme that loads up prices for tomorrow".

“High prices as far as the eye can see – this year, next year and the year after that, give with one hand now and take it all back later," she said.

“By lending billions of pounds to energy companies, the Chancellor is gambling that prices are going to fall – but they could go up further in October. What then? Billions more loaded onto people’s bills?"

Labour MP Dame Meg Hiller said: “I see we know have the ‘Klarna Chancellor’, buy now, get it now, pay later.”

Labour former minister Chris Bryant told the Commons the rising cost of living - including the National Insurance hike and a record inflation high - means £350 in support “does not even touch it” and described the support as "puny".

Will the Chancellor's policies actually help? Political Editor Robert Peston breaks it down

Meanwhile, some energy company insiders worry that while good in principle, the policy is too reliant on falls in global gas prices.

But experts are not sure this will happen, at least not soon, Goldman Sachs has already warned that prices in the gas market are likely to remain at twice their usual levels until 2025.

The cap rise has been driven by a record increase in global gas prices over the last six months, with wholesale prices quadrupling in the last year.

Ofgem said the current cap does not reflect the "unprecedented" record hike in gas prices which has happened since it was last updated in August.

It comes after 29 energy companies went bust in the last year amid soaring global gas prices, affecting around 4.3 million domestic customers.

Jonathan Brearley, chief executive of Ofgem, said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.

“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and 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.

“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”

What is the energy price cap?

According to Ofgem, the energy price cap is updated twice a year and tracks wholesale energy and other costs.

The purpose of the cap is to stop energy companies from making "excessive profits" and ensuring customers are paying a fair price to power their homes.

"The price cap allows energy companies to pass on all reasonable costs to customers, including increases in the cost of buying gas," Ofgem said.

"Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect," it added in a statement.

"This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it."

ITV News Consumer Editor Chris Choi's take on Ofgem's announcement:

The average bill will be almost £2,000 (£1,971) from April a rise of £693 under the new price cap announcement.

Some households are already paying much higher bills as rising wholesale prices are passed through and the cold weather bites.

The announcement means the UK's energy bills will rise by a total of more than £15 billion.

Experts at Energy Helpline called the news “a body blow for millions”.

Now we know what we’ll pay for energy and when - but millions still can’t see how they’ll pay.