Energy prices are set to rise for millions of people across the UK in April, at a time when finances for many are coming under increasing strain.
Regulator Ofgem said the price cap for default domestic energy deals would be increased to cover suppliers’ extra costs, with the average gas and electricity customer expected to see their bill rise by £96 to £1,138 a year.
The regulator said the increase was down to rising wholesale costs, adding that the existence of the price cap meant households saved £100 a year – and that they could also switch to a better deal.
Jonathan Brearley, chief executive of the regulator, said: “Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic. We have carefully scrutinised these changes to ensure that customers only pay a fair price for their energy.
“As the UK still faces challenges around COVID-19, during this exceptional time I expect suppliers to set their prices competitively, treat all customers fairly and ensure that any household in financial distress is given access to the support they need.”
Bearley added that raising prices in spring, when less energy was used, was better than doing so in the autumn.
Peter Earl, head of Energy at price comparison website Comparethemarket.com, said: “Raising energy costs for millions of households by an average of £96 is an extraordinary move in the current environment.
“It calls into question the whole point of a price cap, which was designed to protect the most vulnerable households.”
The price cap, set twice a year by the regulator, affects 11 million households in England, Wales, and Scotland who have never switched suppliers or whose discounted deals have expired. Northern Ireland sets its own cap.
The remainder are on so-called fixed deals, which will not be affected – though, the cost of so-called fixed-rate deals has also been rising, with the cheapest rising by more than £50 in the last three months of 2020.
The cap for prepayment meter customers will go up by £87 to £1,156, affecting another four million customers.
The caps set the prices that suppliers can charge for each unit of energy, but there is not necessarily a limit on the amount of energy people can use and how much they pay.
In October, Ofgem lowered the price cap by £84, but it has now more than reversed that with this latest scheduled price rise.
While the extra allowance for suppliers to raise prices is the result of greater costs on the wholesale markets, it also includes an allowance to charge an extra £24 a year to cover bills that have not been paid.
Ofgem said a further delay in recouping these costs would likely create greater costs next winter.
Higher prices, less financial support
Some charities called the price hike a “double whammy”, coming at a time when the government’s COVID-related support schemes are due to be tapered off.
They point out that raising prices for everyone on these tariffs is likely to increase the number of people unable to pay.
Citizens Advice research undertaken last December indicates that 2.1m households were behind on their energy bills, a rise of 600,000 compared with before the pandemic.
The body said it was concerned that the planned removing of assistance for recipients of Universal Credit, as well as other government financial support schemes being wound down, would likely cause more debt for the average consumer.
Alistair Cromwell, acting chief executive of Citizens Advice, said: “This increase will be a heavy blow to a lot of households. For many people on universal credit it will come at the same time as the £20 a week increase to the benefit is set to end.
“With a tough jobs market and essential bills rising, now is not the time for the government to cut this vital lifeline.”
National Energy Action’s Adam Scorer said: “People on the lowest incomes and in the worst housing are always hit hardest.
“Heating a poorly insulated home costs around £50 a month more than a decent home. If bills rise by £96, millions of households have two stark choices: stay cold or fall further into debt.”
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