Ofgem confirms energy price cap hike

The increase of £693 will take effect from 1 April and will impact approximately 22 million customers. Those on prepayment plans, meanwhile, will see an increase of £708 going up to £2,017. 

The increase has been driven by a record rise in global gas prices over the last six months, with wholesale prices quadrupling in the last year. 

Commenting on the news, Ofgem’s 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.”

In response to the increase, Dr Craig Lowrey - a senior consultant at energy market intelligence firm Cornwall Insight - said the immediate focus of the government and Ofgem must be to shield customers, and the wider economy from the impact of this rise. 

He added: “Mitigating the effect of this rise is however not a viable long-term solution, and without changes, we predict the winter cap will see payments rise to over £2,000 a year for the average customer. Furthermore, any tools intended to reduce the immediate impact of these record high prices will mean that they are ultimately borne over a longer period.” 

Following the price cap increase, Chancellor Rishi Sunak announced a rebate of £150 people in council tax bands A to D in April for those living in England, Wales and Scotland, benefiting around 80% of homes in Britain. He also confirmed plans to give all households a one-off discount of £200 on their energy bills in October, which will be repaid in equal £40 instalments over the next five years.  

Additionally, the government will be setting up a £144m discretionary fund for councils and will be expanding the Warm Homes Discount to three million more households. Northern Ireland - where energy is a devolved issue - will be provided with £150m to provide its own support. 

The Chancellor however rejected calls for a VAT cut on energy to reduce bills, saying this would disproportionately help wealthier households. He added there would be no guarantee energy suppliers would pass on the savings, suggesting it would become a “permanent government subsidy”. 

The energy price cap announcement comes on the same day that parliament’s Business, Energy and Industrial Strategy Committee published a report looking at the government’s approach to decarbonising residential homes. 

The committee said its approach lacked clear direction and policies that are not of the scale necessary to help meet the UK’s 2050 net zero target. It urges the government to bring forward a heat decarbonisation sector deal to help develop low carbon heating technologies, and scale up the heat pump market to meet the government’s target of 600,000 heat pumps a year by 2028. 

It also calls for the government to come forward with a public awareness campaign to explain to the public how their heating systems in their homes will change and the potential costs and benefits of this transition.

The energy market’s current crisis will be high on the agenda in the Utilities & Telecoms stream at this year’s Credit Summit. To look at the summit’s full agenda, click here.