Millions of households have seen their annual energy bills rise by £693 following April’s price cap hike, and with forecasters predicting another increase of up to £800 later this year, many people will be wondering how much higher they could possibly go.
Currently the energy price cap – the maximum amount providers can charge customers on default tariffs for typical usage – stands at £1,971 per year for those paying by direct debit, and £2,017 for prepayment customers.
Analysts at investment firm Cornwall Insight believe the next price cap adjustment, due to come into effect in October, will see that maximum figure shoot up to £2,790.
However, after this, consumers might begin to see prices plateau, according to the firm.
The energy regulator Ofgem recently announced a proposed shift to quarterly adjustments, meaning the price cap will change four times rather than twice a year.
If this plan is implemented, the next price cap adjustment would be due in January 2023. Cornwall Insight estimates an increase of ONLY £28 at this time, bringing the total to £2,818.
However, while the rate at which the price cap rises is set to slow down, this will provide little comfort to the millions of people struggling to cope in the wake of multiple substantial hikes. If Cornwall Insight’s calculations are correct, the cap will have ballooned by nearly 150 per cent to January 2023 from April 2021, when it was set at £1,138.
Four in 10 British households were already struggling to pay for gas and electricity even before the £693 rise last month, according to a March survey by the Office for National Statistics.
Overall, 43 per cent of people who paid for energy bills reported that it was very or somewhat difficult to afford them.
Russia’s invasion of Ukraine has been blamed for pushing up wholesale gas prices globally, with many businesses seeking alternative sources. Although Vladimir Putin’s actions and the sanctions imposed on him internationally have contributed to the problem, prices were already rising prior to the war.
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.”
And despite the announcement from the Chancellor of the Exchequer that the UK government will be introducing a temporary, targeted energy profits levy, Dan Atzori, Research Partner at Cornwall Insight, questioned the use of a windfall tax as a solution to the energy crisis.
He said: “With millions of people in the UK currently in fuel poverty, some may rightly ask how we fund support for vulnerable consumers without a windfall tax.
“Besides giving all consumers small discounts to their energy costs, there are multiple, more sustainable options available that target support at those most in need, whether this be the introduction of a social tariff, or more work to ensure customers on pre-pay meters are not seeing a disproportionate increase in their bills.
“The windfall tax is not an enduring solution to the endemic problem of fuel poverty in this country. We must look further, keeping in mind what will happen when bills rise yet again, or our economy hits another crisis.”