Government to help households with £693 rise in annual energy bills
Households will get Government support to help them cope with the rising cost of energy bills.
Chancellor Rishi Sunak has promised to “take the sting out” of the price rises due to come into force in April when bills will increase by £693 per year for domestic energy customers.
Energy regulator Ofgem has hiked the energy price cap to a record £1,971 for a typical household as gas prices soared to unprecedented highs.
For customers with prepayment meters the price cap will go up by £708 to £2,017, the regulator added.
The decision is likely to impact 22 million households across Great Britain, and applies to those who are on their energy supplier’s default tariff.
Now millions of households will get a £200 up-front rebate automatically applied to their energy bills from October.
The Government will provide the cash for this, but it wants the money back so will hike bills by £40 per year over the next five years from 2023 to recoup its cash, and spread the cost of this year's sharp rises.
If all goes to plan, wholesale energy prices will drop so households can pay back what they owe, without a major rise in bills.
Some energy company insiders worry that while good in principle, the policy is too reliant on falls in global gas prices.
But experts are not sure this will happen, at least not soon, Goldman Sachs has already warned that prices in the gas market are likely to remain at twice their usual levels until 2025.
Mr Sunak has also promised a £150 council tax rebate for homes in bands A to D, something he said would cover around 80% of homes in England. It will not need to be repaid.
He also promised £144 million to councils to support vulnerable people.
“The price cap has meant that the impact of soaring gas prices has so far fallen predominantly on energy companies,” the Chancellor told MPs on Thursday.
“So much so that some suppliers who couldn’t afford to meet those extra costs have gone out of business as a result.
“It is not sustainable to keep holding the price of energy artificially low.
“For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest.
“But what we can do is take the sting out of a significant price shock for millions of families by making sure that the increase in prices is smaller initially and spread over a longer period.”
Ofgem chief executive Jonathan Brearley 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.”
The price cap increase includes a £68 charge per household to cover the costs of protecting millions of customers whose energy suppliers collapsed in recent months.
Ofgem plans to on Friday set out new rules which will allow it to change the energy price cap in between its regular six-month reviews.
The regulator pledged the power will only be used in exceptional circumstances, and five tests will have to be passed before it can step in.
The price cap had already been set at a record high in October before the worst of the gas price spike had been seen in the market.
Cornwall Insight, an analysis outfit, said on Wednesday that it thought the price cap would be £1,915 per household.
There are also worries about next winter, when experts predict bills could spike to as much as £2,329.
The price cap change was originally planned to be announced next Monday, but in a surprise move Ofgem moved it forward without explaining why.