The energy price cap is the maximum amount suppliers can charge customers in the UK per kWh of electricity and gas used every year. This does not limit the total bill costs, and only applies to customers on a standard variable tariff or default tariff. Consequently, while it prevents customers from paying too much on energy by not seeking cheaper alternative deals it is not immune to global market fluctuations and if customers use more than the average user – they pay accordingly. Ofgem, the body that regulates energy in the UK, introduced the price cap in January 2019, with a review to the cap being set bi-annually with changes made every April and October. The price cap is calculated using a metric that accounts for a range of costs that energy suppliers face. The recent review takes effect in April 2022 and will have factored in the many energy suppliers that went out of business towards the end of 2021 which has led to a record increase to the cap announced last week.
Ofgem announced back in October that the cap would increase by £139 to an annual total of £1,277 for the average household, and the rate will now rise by £693 to £1,971 per year – an increase of more than 50%. This will be the maximum cost increase for those customers on default tariffs paying by direct debit who reach the specified level of energy consumption while prepayment customers will see a jump of £708 from £1,309 to £2,017.
This particular increase in household energy bills has been forecast by analysts since the October review, as experts had originally warned of a 30% increase for April 2022, an estimation that has unfortunately been considerably exceeded. Supply failures are not the only factor behind this sharp increase to the price cap, as a particularly cold winter in Europe resulted in a surge in demand which the growth in supply did not adequately meet.
As the rising price of wholesale gas and electricity leads households to spending considerably more on their energy bills, many are left wondering how they will cope with this additional expenditure and recent financial support has been targeted towards suppliers, rather than consumers.
The Chancellor has since announced up to £350 in support per household to help mitigate the effect of rising energy bills. This support comes in the form of £9bn in state-backed loans in England, Scotland and Wales which will be repaid at £40 a year over five years from 2023. The support includes:
Significantly, the rebate loan won’t be available to households until October 2022, which is when the Ofgem will review the price cap again, and may result in a further increase to energy bills in the UK. The outcome is limited immediate support available as a further 2 million people will be pushed into fuel poverty, bringing the overall national figure to over 6.3 million.
In the short term, the Warm Home Discount scheme will be expanded.
The scheme currently offers a £140 discount to those on certain benefits, and is expected to be expanded to increase eligibility by a third on top of a planned £10 uplift which will come into effect in October 2022.
Information about the grants and benefits currently available to help with energy bill payments can be found; click here for Citizens Advice guidance. Or contact Citizens Advice Reigate and Banstead on the free Adviceline at 0808 278 7945 or get advice online for help with questions.
Luca Difato, Communications Assistant. 22nd February 2022.