LONDON – Britain’s energy regulator announced on Friday it will raise its main cap on consumer energy bills to an average £3,549 ($4,197) from £1,971 a year, as campaign groups, think tanks and politicians call on the government to tackle with the cost of life crises.
The price cap limits the standard charges energy suppliers can charge household customers for their combined electricity and gas bill in England, Scotland and Wales, but is recalculated by Ofgem throughout the year to reflect wholesale market prices and other industry costs.
It covers approximately 24 million households. The 4.5 million households on prepaid plans face an increase from £2,017 to £3,608.
The cap does not apply in Northern Ireland, where suppliers can raise prices at any time after obtaining approval from another regulator.
Gas prices have soared to record highs over the past year as higher global demand has been boosted by low gas storage levels in Europe and a drop in pipeline imports from Russia following its invasion of Ukraine. He has this too increased electricity prices.
Earlier this month, Ofgem announced it would recalculate the cap every three months instead of every six months to reflect current market volatility.
Cornwall Insight Advice predictions the cap could rise to £4,649.72 in the first quarter of 2023 and £5,341.08 in the second quarter, before falling slightly to £4,767.97 in the third quarter.
This is still higher than the average annual bill of £1,400 in October 2021 and the current cap of £1,971.
In July, the government announced it would pay all households a £400 grant to help with bills for six months from October, with a further £650 in one-off payments to 8 million households at risk. Some vendors have also announced support packages for customers.
However, this was widely criticized for not addressing the extent of the problem that it was compared with The covid-19 pandemic and the 2008 financial crisis in terms of its impact on the population.
“Disaster is coming this winter as soaring energy bills could cause serious physical and financial damage to families across Britain,” Jonny Marshall, chief economist at the Resolution Foundation think tank, said ahead of the announcement.
“We are on track for thousands of people to see their power completely cut off, while millions will be unable to pay their bills and build up unmanageable arrears.”
They are here too worry over the impact on UK businesses that are not protected by the cap and may face the impact of eroding consumer purchasing power.
Politicians, consultancies and contractors themselves have put forward several strategies to deal with the crisis, but they are still going ahead UK leadership elections this meant no new policy announcements were made despite the looming increase in bills.
The candidates, Liz Truss and Rishi Sunak, both spoke of the need to provide additional support to households and businesses, but said no decision would be made until a new prime minister is elected on September 5.
At a leadership event on Thursday evening, Sunak said he would provide further “direct financial support” to vulnerable groups.
Truss, the current favorite to win the contest, repeated previous comments that he wanted to use the tax cuts to ease the pressure on households, reverse the recent rise in National Insurance tax and suspend green energy bill charges.
Options on the table are believed to include freezing the price cap at its current lower level – which energy suppliers say would have to be funded through a government bailout to avoid destabilizing the industry – or allowing the price cap to rise. and extending household support.
Consumer Group Which? said on Thursday that the government needed to increase household payments from £400 to £1,000, with an additional one-off minimum payment of £150 to households on the lowest incomes, to keep millions of people out of financial distress.
Opposition Labor has said it will freeze over the winter by extending the limit from April to October recently introduced a windfall tax on oil and gas companies, scrapping the £400 universal pay and finding more savings to freeze the cap over the winter.
Scotland’s first minister, Nicola Sturgeon, said on Twitter: “This increase must be reversed, with the UK Government and energy companies then agreeing a package to fund the costs of the freeze for a longer period, together with fundamental reform of the energy market.”
The Department for Business, Energy and Industrial Strategy commented: “As well as existing government support, the Civil Service is making appropriate preparations so that any new support or cost of living commitments when there is a new Prime Minister can be delivered as quickly as possible.” How is it possible.”
Jonathan Brearley, chief executive of the Office for Gas and Electricity Markets, known as Ofgem, said any response needed to be “appropriate to the scale of the crisis ahead of us” and involve the regulator, government, industry, NGOs and consumers working together .
“We know what a massive impact this price cap increase will have on households across Britain and what difficult decisions consumers will now have to make,” Brearley said.
“The Government’s support package is providing help right now, but it is clear that the new Prime Minister will need to act further to deal with the impact of rising prices coming into October and next year.
“We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action.”
“The new prime minister will have to think the unthinkable in terms of the policies needed to get enough support where it’s needed most,” said the Resolution Foundation’s Marshall.
“An innovative social tariff could provide wider targeted support, but it involves huge supply problems, while freezing the price cap gives too much to those who need it least. This problem could be overcome by a solidarity tax on high earners – which is in an unthinkable policy in this context.” leadership debates, but practical solutions to the realities facing families this winter.”
Emma Pinchbeck, chief executive of Energy UK, the trade body for the energy industry, told the BBC on Friday morning that the industry would continue to call for government intervention to help consumers and the impact on the wider economy.
“Most [suppliers] create a negative margin and have over the last few years, it is one of the reasons why we have lost 29 suppliers from the market. So when you look at this and the scale of this crisis, we’re talking about something far greater than the industry can achieve, despite the help that’s been put in place, despite charging the maximum they can for the cost of buying gas.”
Pinchbeck said the industry favored a deficit tariff plan that would allow suppliers to keep prices at their current levels and have their costs covered by the loan because implementation was the fastest.
Marco Alvera, CEO of renewable energy company TES-H2, told CNBC.Squawk Box Europethat higher gas prices were a Europe-wide problem as gas moves freely between countries across the continent.
“If people are not thinking about closing gas borders, which I haven’t heard anyone say, we should really think about this as a European gas crisis that can only be met with European solutions. With price caps, other measures that are now urgently needed to be implemented, Alvera said.
“We need to work now before winter comes on solidarity mechanisms, because we cannot let consumers and households freeze in one country and open factories in another country. We really need to agree as soon as possible that households and retail consumers come first.”
Faced with soaring wholesale prices, European governments are coming up with their own support packages for citizens.
France fully nationalized energy supplier EDF at an estimated cost of 9.7 billion euros ($9.8 billion) and capped electricity rate increases at 4%.
German households will pay around €500 more on their annual gas bills by April 2024 through a levy to help utilities cover the cost of replacing lost Russian supplies, while electricity prices will also rise. The government is discussing a sales tax exemption and a relief package for poorer households, but has also been criticized for not announcing adequate support.
Italy and Spain have used windfall taxes to fund a combination of benefits for households in need and account limits that have risen to unaffordable levels.