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Household gas and electricity bills in Britain will rise this winter after regulator Ofgem said it would lift the energy price cap by 10 per cent following an increase in wholesale costs.
Ofgem has set the cap for the period between October and December at a level that will mean a typical household pays £1,717 a year, compared with £1,568 a year now.
Friday’s decision is the first time the regulator has raised the cap since January and means bills for about 27mn households remain hundreds of pounds higher than before the energy crisis fuelled by Russia’s full-scale invasion of Ukraine in February 2022.
It comes after chancellor Rachel Reeves last month announced a £1.5bn cut to winter fuel payments for better-off pensioners as part of emergency savings to fill in a £22bn fiscal hole she claims she inherited from the Conservatives.
Jonathan Brearley, chief executive of Ofgem, said the watchdog recognised that the rise in the price cap would be “extremely difficult for many households” and warned that a return to pre-2022 costs was unlikely.
“I think what we need to accept is that this situation of volatile gas prices — gas prices being certainly higher than they were pre-crisis — is one that’s likely to be around for a long time,” he told the BBC.
“I don’t know that’s the case, but I think the government, Ofgem, the sector and consumer groups need to see this as a long-term, not a short-term, problem,” he added.
Energy secretary Ed Miliband said the 10 per cent increase would be “deeply worrying news for many families” and that the government was trying to lower bills by developing renewable energy projects.
“The only solution to get bills down and greater energy independence is the government’s mission for clean, homegrown power,” he said.
The price cap, introduced in 2019, sets a limit on how much energy companies can charge homes on default tariffs per unit of gas and electricity consumed. It is reset every three months to reflect changes in wholesale prices.
On a per unit basis the cap will rise from 22.36 pence per kilowatt hour to 24.50 pence per kWh hour for electricity, with a daily standing charge of 60.99 pence, up from 60.12 pence now. For gas, the cap will increase from 5.48 pence per kWh to 6.24 pence per kWh, with a daily standing charge of 31.66 pence, up from 31.41 pence.
Before winter 2021, Ofgem set the cap at levels that meant typical households paid less than £1,100 a year.
But the average bill hit a record high of £4,059 in January last year as wholesale prices surged after Russia’s invasion, forcing the previous Conservative government to launch a subsidy scheme.
The latest increase in the price cap is also connected to the war in Ukraine, with wholesale prices climbing over the past few months because of uncertainty over Russia’s remaining gas supplies to Europe.
Other elements of the cap, such as network costs, are linked to inflation and so have also risen in recent years.
Ofgem’s announcement highlights the challenges ahead for Prime Minister Sir Keir Starmer’s government as it pushes to cut energy bills in the longer term.
At present gas is used to heat the vast majority of Britain’s homes and to make more than one-third of its electricity, meaning any increases in wholesale gas prices have a significant impact.
Under measures set out by Reeves last month, winter fuel payments will be limited to people receiving pension credit and other means-tested benefits.
Caroline Abrahams, at Age UK, said: “Means-testing winter fuel payment when fuel prices are rising by 10 per cent spells disaster for pensioners on low and modest incomes or living in vulnerable circumstances due to ill health.”
Brearley declined to say if the price cap would rise again in January. But energy consultancy Cornwall Insight, which had predicted a 9 per cent rise in the cap from October, is forecasting a further 3 per cent increase from the start of next year.
Craig Lowrey, principal consultant at Cornwall Insight, said: “The lingering impact of the energy crisis has left us with a market that’s still highly volatile and quick to react to any bad news on the supply front.”
