Price cap raised
Households to get help after 54% rise in energy bills
Chancellor Rishi Sunak has confirmed that millions of households will receive help with their energy bills after the regulator hiked the price cap by 54%.
Ofgem said the cap will increase by £693 to £1,971 per year from 1 April for customers on direct debits. Prepayment customers will see an increase of £708 from to £2,017.
The new cap is based on a household with typical consumption on a dual electricity and gas bill paying by direct debit.
The Treasury responded by confirming that millions of households will receive £350 of government support.
Recognising that growing cost of living pressures was the “number one issue on people’s minds”, Mr Sunak said this package would support hard working families.
The Energy Bills Rebate will provide around 28 million households with £200 off their energy bills from October, with 80% of households receiving a £150 council tax rebate from April. The rebate – which critics said is actually a loan – applies initially to England, with the devolved nations expected to follow with similar measures via £565 million of Barnett consequentials funding.
However, while Scotland’s First Minister Nicola Sturgeon pledged to spend “every penny” received from Westminster to mitigate the energy price hike she made no commitment to match the UK Government’s council tax rebate scheme. This was partly because of differing relief schemes that exist.
She said: “There is one issue that we will have to deal with in Scotland because part of the Chancellor’s announcement was around rebates for council tax. Of course, average council tax bills are significantly lower already in Scotland.
“One of the other differences is that due to decisions made by this SNP Government, around 400,000 people in Scotland don’t pay any council tax because we have a council tax reduction scheme, unlike the situation in England – that can deliver up to 100% relief.
“We will have to consider how we help those people because these people will still have energy bills that are rising as well, and we are determined that that help will be delivered.”
Prime Minister Boris Johnson said: “During the pandemic this Government has acted decisively to protect jobs and livelihoods, particularly for those on the lowest incomes.
“But today we recognise the real and growing concerns people have about the cost of living – and once again we are taking action.”
The Chancellor also today confirmed plans to go ahead with existing proposals to expand eligibility for the Warm Home Discount by almost a third so that three million vulnerable households will now benefit, as well as the planned £10 uplift to £150 from October. This follows a consultation by the Department for Business, Energy and Industrial Strategy to reform the policy so that more people will benefit.
Rachel Reeves, Labour’s Shadow Chancellor of the Exchequer, accused the Chancellor of wanting to load costs on taxpayers with a ” buy now, pay later scheme ” and repeated Labour’s plan tol keep bills low with a windfall tax on North Sea oil and gas producers.
Andrew McRae, the Federation of Small Businesses Scottish policy chairman, said: “The measures outlined by the Chancellor today do nothing to protect local and independent businesses from punishing increases to their energy bills.
“Small businesses aren’t included in the price cap, and don’t have the negotiating power of the biggest firms. That means that Scottish businesses are under the same pressure as households with none of the protections.
“The UK Government is right to help households with rising costs, but Ministers need to extend the support to include smaller firms. And with cash from today’s announcement heading to Holyrood, we’d urge decision-makers in Edinburgh to look at what they can do to help.”
The increase in the cap is driven by a record rise in global gas prices over the last six months, with wholesale prices quadrupling in the last year.
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.
The price cap is updated twice a year and tracks wholesale energy and other costs.
It stops energy companies from making excessive profits, ensuring customers pay no more than a fair price for their energy.
The price cap allows energy companies to pass on all reasonable costs to customers, including increases in the cost of buying gas.
Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place.
Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect.
This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it.
Over the last year, 29 energy companies have exited the market or been put in special administration in the wake of 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.”
Ofgem will tomorrow announce further measures to help the energy market weather future volatility by increasing financial resilience and have the flexibility to respond so that risks are not inappropriately passed on to consumers. This follows measures announced in December.
The further measures include enabling Ofgem to update the price cap more frequently than once every 6 months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.