In response to calls from advocacy groups, think tanks, and politicians for the government to address the cost-of-living crisis, Britain’s energy regulator announced Friday that it will increase its main cap on consumer energy bills to an average of £3,549 ($4,197) from £1,971 annually.
The price cap sets a maximum amount that domestic energy suppliers can charge for their combined electricity and gas bills in England, Scotland, and Wales, but it is periodically updated by Ofgem to account for changes in wholesale market prices and other business expenses.
About 24 million households are included. 4.5 million households with prepayment plans will see their monthly payments go up from £2,017 to £3,608.
Northern Ireland is exempt from the cap, allowing suppliers to raise prices whenever they see fit after receiving approval from a different regulator.
Over the past year, gas prices have risen to record highs as a result of increased global demand being exacerbated in Europe by low gas storage levels and a decline in pipeline imports from Russia as a result of its invasion of Ukraine. Also as a result, electricity costs have gone up.
To reflect the current market volatility, Ofgem announced earlier this month that it will update the cap every three months rather than every six.
According to forecasts from consultancy Cornwall Insight, the cap could rise to £4,649.72 in the first quarter of 2023, to £5,341.08 in the second, and then to £4,767.97 in the third.
This is still higher than the current £1,971 cap and the average annual bill of £1,400 in October 2021.
The government announced in July that it would give all households a £400 grant to help with bills over a six-month period beginning in October, with an additional £650 one-time payment going to 8 million vulnerable households. A few vendors have also disclosed customer support plans.
The scale of the issue, which has been compared in terms of its impact on the populace to the Covid-19 pandemic and the 2008 financial crisis, has been widely criticized for not being addressed.
“A catastrophe is coming this winter as soaring energy bills risk causing serious physical and financial damage to families across Britain,” said Jonny Marshall, senior economist at the Resolution Foundation think tank, ahead of the announcement.
“We are on course for thousands to see their energy cut off entirely, while millions will be unable to pay bills and build up unmanageable arrears.”
Concerns have also been raised about the impact on British companies, who are not covered by the cap and may suffer from the decline in consumer spending power.
Numerous approaches to resolving the crisis have been proposed by politicians, consultancies, and suppliers, but despite the impending bill increase, no new policy announcements have been made due to the ongoing U.K. leadership election.
Both candidates, Liz Truss and Rishi Sunak, have discussed the need to offer more assistance to individuals and businesses, but they have both stated that no decisions will be made until the new prime minister is chosen on September 5.
According to energy suppliers, options on the table include freezing the price cap at its current lower level, which would require funding from a government-supervised funding package to avoid industry destabilization, or allowing the price cap to rise and extending household support.
Consumer advocacy group Which? stated on Thursday that in order to keep millions of people from experiencing financial hardship, the government should increase household payments from £400 to £1,000 and provide the lowest-income households with an additional one-time minimum payment of £150.
The opposition Labour Party has stated that it will extend the recently implemented windfall tax on oil and gas companies through the winter, eliminate the universal £400 payout, and find other ways to save money to extend the April-to-October cap.
(Adapted from CNBC.com)