Energy price cap to rise 80% to £3,549 sending winter bills soaring from October, Ofgem announces

The government acknowledged the anxiety the price cap increase will cause households - but warm words won't pay the bills, Consumer Editor Chris Choi reports

The energy price cap will increase by more than 80% to £3,549 from October 1, Ofgem has announced.

As the regulator revealed the new figure for Scotland, England and Wales, its chief executive urged the incoming prime minister to “act further” to tackle the impact of price rises.

The average yearly bill for households on a default tariff will rise by £1,578 - a blow to millions struggling under increasing inflation.

Some 4.5 million pre-payment meter customers - who are often the most vulnerable and already in fuel poverty - will see an even more punishing increase, with their average annual bill set to go up to £3,608.

Analysts have issued dire forecasts warning the amount could increase again from January, as Ofgem begins adjusting the price cap every three months instead of twice a year.

The energy price cap, which was introduced in 2019, is a limit on how much suppliers can charge for each kWh of energy used, together with a maximum daily standing charge.

This time last year, households were paying approximately £2,300 less for energy.Bill payers may have to wait to discover what further action might be taken, with the the Tory leadership race result yet to be confirmed.

As they wait, many households are likely to try to reduce bills by keeping their homes colder, cooking in bulk and taking shorter and less regular showers.

But such savings are likely to offset only a small proportion of the mammoth price cap.

“I’ve always struggled, but not as much,” 54-year-old Jennifer Jones from London said.

“Everything is going up. I can’t even pay my rent, my council tax, I can’t afford to do anything. … I keep asking myself, what am I supposed to do?”

Around 45 million people in the UK could be thrown into fuel poverty this winter, according to a study from the University of York.

Rocio Concha, the director of policy and advocacy for Which?, said that six in 10 households are cutting back on essentials or dipping into savings, even ahead of the bill rises.

“The government must move quickly to increase the amount of financial support it is providing to help households make ends meet and work with businesses to look at what more they can do for those facing serious financial hardship,” she said.

Energy UK, which represents suppliers, also called for government intervention. It said the charges its members will be forced to pass on to households will be “simply unaffordable”.

What support might be put in place depends on who becomes prime minister.

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What have Rishi Sunak and Liz Truss proposed to do help billpayers?

Frontrunner Liz Truss has said that she might remove the £400 support from higher earning households.

She has also hinted at removing the existing windfall tax on energy firms, which was introduced in May by her rival, Rishi Sunak.

Ms Truss insists that National Insurance tax cuts can help, and promised to ensure the UK starts producing more North Sea energy.

She has also promised to slash green levies on energy bills, and hinted at targeted support for the most vulnerable households.

Mr Sunak has said that her plans will tip millions into destitution, and her pledge to cut National Insurance payments will save people £1 a week and do nothing for households.

Following Friday's announcement, the former chancellor said rising costs were "the most pressing challenge facing the country".

Rishi Sunak lays out his plan for tackling rising energy prices

Mr Sunak also reiterated that he has announced an extra £10 billion to help people with their bills.

A Sunak government would temporarily scrap VAT payments on domestic fuel use, taking £200 off the average bill, while it would funnel an extra £5 billion to the most vulnerable.

However, Labour says this is not enough to cover the massive rises. Both Labour and the Liberal Democrats have called for a prize freeze at just under £2,000.

Several energy companies have suggested similar ideas – using bank loans to keep the cap at current levels.

How does Ofgem set the price cap?

Ofgem decides the price cap by observing what wholesale energy prices do over several months.

It then multiplies this price per unit by the number of units of gas and electricity that an average household uses in a year.

To this it adds several charges. These include VAT, green and social levies, charges paid to the energy networks, and a small amount of profit.

The cap is designed to limit the amount of profit that an energy supplier can take. It does not limit the profits of the companies that sell the same energy to that supplier.

What will energy prices look like next year?

Based on Wednesday’s gas prices, experts at consultancy Auxilione think the cap will reach £5,210 in January 2023 and £6,823 in April.

Then it will fall, but only to £6,106 in July and £5,668 next October.

How has the government responded to the new cap - and will there be more help?

Boris Johnson acknowledged that the winter will be "tough" for many, and that the government will be announcing further help for the public in September.

He also said the government had already announced a "pipeline of cash", which includes £400 off energy bills for all, the second instalment of a £650 payment for vulnerable households, and £300 for all pensioners.

Boris Johnson says his government has announced a "pipeline of cash" in order to tackle the energy price crisis

Chancellor Nadhim Zahawi said he's working "flat out" to ensure the incoming prime minister can "hit the ground running and deliver support to those who need it most, as soon as possible”.

This echoes a recent statement from the government, which said “fiscal decisions for the coming months" will be for the next PM, who will take office on September 5.

What does the Labour opposition say it would do to help households?

Earlier this month, the party’s leader Sir Keir Starmer announced proposals for a six-month freeze on energy bills at the current £1,971 price cap, funded in part by expanding the windfall tax on oil and gas profits.

Labour again urged the Conservative party to impose a windfall tax on gas and oil companies today, as the opposition warned Ofgem's announcement will "strike fear in the heart of many families".

“People deserve a government that can meet the scale of this national emergency - not this spectacle of a Tory leadership race or a prime minister that put his out of office on months ago," shadow chancellor Rachel Reeves said.

Labour says it would bring in a 'fully-funded' plan to freeze the price cap to ensure households don’t pay a penny more this winter, saving £1,000. However, charity Full Fact today claimed the party has not taken into account that people use more energy in the winter, causing it to underestimate the cost of freezing bills by at least £5 billion, or £340 per household.

Labour sources, speaking to the PA News Agency, disputed Full Fact’s analysis and said the party had costed its plans based on consultation with industry regulator Ofgem.

Findings from economists at the Institute for Fiscal Studies (IFS) think tank suggest the total cost of the plans could be even higher, at roughly £8 billion more than Labour’s projected price tag of £29bn.