Energy price cap announcement: Ofgem announces rise
By Cassandra Dove, SFHA Research and Policy Lead.
Ofgem's announcement today of the energy price cap rise will impact around 22 million households in England, Scotland and Wales who will see a significant increase in their household energy costs. Those on default tariffs will see a 54% rise, resulting in an average annual bill of £1,971 for a typical dual fuel customer. The average prepayment bill will also increase from £1,309 to £2,107.
While the cap rates set a maximum charge per unit of energy, overall costs will still be influenced by the amount of energy used and the type of heating system. Those with electric heating, for example, will face even higher average bills due to the high cost of electricity compared to gas.
Since being introduced in 2019, the energy price cap has offered benefits to households on default tariffs by limiting the maximum price suppliers can charge customers and protecting consumers from excessive loyalty penalties. While this protection has mitigated the impacts of the recent increases in wholesale energy costs to some degree, the previous review in October 2021 still resulted in a record high cap rates and the latest increase, which will take effect in the spring, will place even further pressure on household budgets.
The UK Government has also announced that households will receive an automatic £200 discount on their electricity bills from October to reduce the impact, however, this will still have to be repaid over the next five years. Calls to cut the 5% VAT rate on domestic fuel were also rejected on the basis that this would result in greater savings for wealthier households with larger properties.
The Scottish Government has been providing additional support to households as part of the Winter Support Fund, including the Social Housing Fuel Support Fund for social housing tenants. However, the First Minister has stated that other measures will be considered in light of the new price cap.
SFHA Energy Forum
We'll be discussing this issue at our next Energy Forum on 17 February. You can raise your concerns and discuss the impact of rising energy bills. Members can book their place here.
You can read the full Ofgem announcement here.