• Energy price cap means average bill will rise by £693 a year – a rise of 54%
• The average annual bill will now be £1,971
• The nation’s energy bills will rise by £15bn
• More than a quarter of households in the UK are estimated to be in fuel poverty from April
• Ofgem will update the price cap more regularly than every six months ‘in exceptional circumstances’
Laura Suter, head of personal finance at AJ Bell, comments on the latest announcement by Ofgem on the energy price cap:
“More than 22 million households will have to fork out an extra £693 a year on average from April, meaning the nation’s energy bills will rise by more than £15bn. The move takes the average energy bill to just shy of £2,000, while those on pre-payment meters will pay just over that each year.
“The increase means that more than a quarter of households in the UK are estimated to be in fuel poverty from April, where more than 10% of their budgets are spent on fuel bills*. The increase means that many households, beyond the poorest, will now find it a struggle to pay their bills each month.
“In a dismal clash of timing for the nation the fuel hikes will come in ‘awful April’ – the same month as we’re all hit with higher tax bills from the National Insurance hike, stealth taxes from frozen income tax allowances, an expected spike in inflation pushing other costs higher and a more expensive council tax bill. One small silver-lining is that the increase will happen in April when the weather should be warmer and the mornings lighter, meaning we’re all using a bit less energy.
“The rise will affect older people more, who spend a larger proportion of their income on energy, with 40% of pensioner households now expected to be in fuel poverty as a result of the hike*. Those living on the state pension will find the bill increase hardest to stomach, as they will see a below-inflation increase to their pension in April, at the same time as facing a far larger hike in their fuel costs.
“The energy price cap rise is a double hit for families, who will see their energy bills soar but will also see inflation pushed higher as the effect of energy bills are taken into account. Some of this inflation increase will come directly from the fact that energy prices have risen, with current 12-month inflation rates for gas and electricity at their highest since early 2009, with gas at 28% and electricity at 19%. However, the other impact on inflation is that many businesses paying more for energy costs will pass that cost onto customers, pushing prices up in a further hit to people’s pockets.
“All eyes are now on the Government as to what it plans to do to help those households most in need. The leaks and rumour-mills have been rife leading up to today, but one thing appears clear – none of the plans will entirely abolish the price rises families will face, instead providing a sticking plaster for a big wound to family budgets. Any loan scheme, like the ones mooted, will also just delay the problem, rather than solve it. And if energy prices don’t fall before the loan has to be repaid the nation will face a double-whammy of continuing higher prices and repaying the loans.
“So what can people do to beat the hike? The old advice of switching to a fixed-rate deal has been turned on its head as none are cheaper than the price cap now. The only reason you’d switch to one is if you think energy prices are going to soar in the coming months. Anyone on a fixed-rate deal will be unaffected, but with this increase happening in April and another rise expected in October, it’s worth digging out your paperwork, seeing when your fixed deal ends and preparing for a rise in prices when it does.
“What’s probably of equally big concern for billpayers is that Ofgem has said it will update the price cap more regularly than every six months in ‘exceptional circumstances’, which presumably would cover the recent leaps in wholesale prices we’ve seen. This means households will have even less certainty about what price they will be paying for energy. But the effects of the price cap and soaring energy costs mean that since last summer 29 energy suppliers have gone out of business or into special administration, and Ofgem is attempting to mitigate some of this.”
*Based on Resolution Foundation figures: https://www.resolutionfoundation.org/press-releases/families-suffering-from-fuel-stress-set-to-treble-overnight-to-six-million-households-as-energy-bills-soar/
