Energy price cap to increase to £3,549 a year

The energy regulator says this increase reflects the “continued rise in global wholesale gas prices”, which began to surge following the Covid pandemic and have been driven higher by Russia slowly switching off gas supplies to Europe. 

Its announcement comes as Ofgem’s chief executive Jonathan Brearley warns of the hardship energy prices will cause this winter. As such, he’s urging the incoming prime minister and new cabinet to provide an additional and urgent response to the surging prices.

Additionally, while the regulator is not giving price cap projections for January because of the volatility in the market, the market for gas in the winter means prices could get significantly worse in 2023. Predictions from energy market researcher Cornwall Insight suggest January’s price cap could exceed £4,600. 

Brearley said: “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. 

“I talk to customers regularly and I know that today’s news will be very worrying for many. The price of energy has reached record levels driven by an aggressive economic act by the Russian state. 

“They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap.

“The government support package is delivering help right now, but it’s clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year. We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action. 

“The response will need to match the scale of the crisis we have before us. With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this.”  

Alongside this announcement, the regulator has also strengthened the rules around direct debits to ensure suppliers set them at the right level. The changes, according to Ofgem, are designed to stop suppliers from building up excessive customer credit balances and using them in a risky way as working capital. 

As part of this, it’s strengthened requirements for suppliers to have sufficient control over the key assets they use to run their businesses. It’s also extended the Market Stabilisation Charge, which is paid by suppliers and helps protect customers from the cost of supplier failure. 

Additionally, it’s extended the ban of acquisition-only tariffs which ensures all energy tariffs are available to existing as well as new customers, and has launched a review into the mechanism and level of profit margin available under the price cap to ensure suppliers do not earn excessive profits. 

Households facing “no-win scenario” 

Responding to the announcement, charity StepChange’s chief executive Phil Andrew, said households facing rising debt are going to need significantly more help from the government than the measure already announced. 

He explained: “Household budgets are being pushed to the absolute limit and it’s inevitable this will lead to more people experiencing debt. The demand for debt advice is rising across the sector as the cost-of-living crisis bites. 

"Many of our existing clients are also having to amend their arrangements as they can no longer afford their previous payments. The government is going to need to step in with more support for those who simply can’t cope financially due to these enormous price hikes. 

“The question is how best to target and deliver relief to those who need it – we continue to favour an early uprating of benefits, and additional ambitious support to meet the scale of the crisis that many households will face.”

The Money Advice Trust’s chief executive Joanna Elson, meanwhile, said millions of households are facing a “no-win scenario”, with the need for further support becoming more urgent. She added: “The government needs to come up with solutions for the many people for whom this situation is simply unaffordable.  

"This could include significantly raising benefits and introducing direct additional support to households on the lowest incomes. Ofgem also needs to do more to protect households by ensuring suppliers treat people who are struggling or already in energy arrears fairly and halting potentially harmful debt collection practices.

“This energy crisis is proving catastrophic for small businesses too. The government needs to explore every option available to help small businesses cope with soaring energy costs – or risk many thousands failing to get through the winter.”