LONDON — Britain’s energy regulator announced on Friday it would raise its main cap on consumers’ energy bills to an average of £3,549 from £1,971 a year, as campaign groups, groups think tanks and politicians are calling on the government to tackle a cost of living crisis. .
The price cap limits the standard load that energy providers can charge domestic customers for their combined electricity and gas bill in England, Scotland and Wales, but is recalculated by Ofgem throughout the year. year to reflect wholesale market prices and other industry costs.
It covers approximately 24 million homes. The 4.5million households on prepayment 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 hit record highs over the past year as rising global demand has been intensified in Europe by low levels of gas storage and a drop in pipeline imports from Russia following of his invasion of Ukraine. This has also increase in electricity prices.
Earlier this month, Ofgem announced that it would recalculate the cap every three months rather than every six months to reflect current market volatility.
Cornwall Insight Council forecasts the cap could reach £4,649.72 in Q1 2023 and £5,341.08 in Q2 before dropping slightly to £4,767.97 in Q3.
This remains up from an average annual bill of £1,400 in October 2021 and the current cap of £1,971.
“A disaster”
In July the government announced it would pay a £400 grant to all households over a six-month period from October to help pay the bills, with an additional one-off payment of £650 for £8million vulnerable households. Some vendors have also announced support packages for customers.
However, this has been widely criticized for failing to take into account the scale of the problem, which has been compared with the Covid-19 pandemic and the financial crash of 2008 in terms of impact on the population.
“A disaster is brewing this winter as soaring energy bills threaten to cause serious physical and financial damage to families across Britain,” said Jonny Marshall, senior economist at the Resolution Foundation think tank. , before the announcement.
“We are on track for thousands of people to have their energy completely cut off, while millions will be unable to pay their bills and run up unmanageable arrears.”
Several strategies to deal with the crisis have been proposed by politicians, consultants and the suppliers themselves, but the UK leadership election means that no new policies have been announced despite the impending rise 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 the election of the new prime minister on September 5.
During an election campaign Thursday night, Sunak said he would provide additional “direct financial support” to vulnerable groups.
Truss, the current favorite to win the competition, repeated previous comments about wanting to use tax cuts to reduce pressure on households, reverse the recent National Insurance tax hike and suspend the tax on green energy bills.
Plan needed
Options on the table are thought to include freezing the price cap at its current lower level – which energy suppliers say should be funded by a government-supervised financing program to prevent the destabilization of the industry – or allowing the price cap to rise and extending support to households.
Consumer group Which? On Thursday, the government was due to extend household payments from £400 to £1,000, with an additional one-time minimum payment of £150 to lowest-income households, to prevent millions from falling into financial distress.
The opposition Labor Party said it would freeze the cap from April to October over the winter by extending the recently introduced windfall tax on oil and gas companies, scrapping the £400 universal payment and finding other savings to freeze the cap over the winter.
Jonathan Brearley, chief executive of Ofgem, said any response must “match the scale of the crisis we have before us” and involve the regulator, government, industry, NGOs and consumers working together.
“We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make,” Brearley said.
“The government’s support package is helping at the moment, but it is clear that the new Prime Minister will have to do more to deal with the impact of the price rises to come in October and next year.
“We are working with ministers, consumer groups and industry on a set of options for the new Prime Minister which will require urgent action.”
“The new prime minister will have to think of the unthinkable in terms of the policies needed to get enough support where it’s needed most,” said Marshall of the Resolution Foundation.
“An innovative social tariff could provide broader targeted support but entails huge delivery challenges, while freezing the price cap gives too much to the less needy. This problem could be overcome with a solidarity tax on high earners – a policy unthinkable in the context of leadership debates, but a practical solution to the reality facing families this winter.”
CNBC has contacted the government for comment.
Gas purchase cost
Emma Pinchbeck, chief executive of energy industry trade association Energy UK, told the BBC on Friday morning the industry would continue to call for government intervention to help both consumers and impact on the economy at large.
“More [suppliers] making a negative margin and having over the last few years is one of the reasons we lost 29 vendors from the market. So when you look at that and the scale of this crisis, we’re talking about something way bigger than what the industry can do, despite the aid that’s been put in place, despite charging the maximum possible for the cost of purchasing gasoline. »
Pinchbeck said the industry favored a deficit pricing scheme that would allow suppliers to keep prices where they are and cover their costs with a loan because it was the fastest to implement.
Wider Challenge
Faced with the same spike in wholesale prices and varying degrees of dependence on Russian gas, European governments are offering their own support programs for citizens.
France completely nationalized energy supplier EDF at an estimated cost of 9.7 billion euros and capped increases in electricity tariffs at 4%.
German households are expected to pay around 500 euros ($509) more on their annual gas bills until April 2024 thanks to a levy to help utilities cover the cost of replacing lost Russian supplies, fuel prices electricity should also increase. The government is discussing a sales tax exemption on the levy and a relief package for poorer households, but has also been criticized for failing to announce adequate support.
Italy and Spain have both used windfall taxes to fund a combination of subsidies for needy households and limits on bills reaching unaffordable levels.