LONDON – Britain’s energy regulator announced on Friday that it would raise its main limit on consumer energy bills to an average of £3,549 from £1,971 a year, as advocacy groups , think tanks and politicians urged the government to address the cost of living crisis. .
The price cap limits the standard fee energy suppliers can bill domestic customers for their combined electricity and gas bills in England, Scotland and Wales, but is recalculated by Ofgem throughout the year to reflect wholesale market prices and other industry costs.
It covers about 24 million households. 4.5 million households with prepaid plans face an increase from £2,017 to £3,608.
The limit does not apply in Northern Ireland, where suppliers can raise prices at any time after approval by another regulator.
Gas prices rose to record levels last year as higher global demand was boosted in Europe by low gas reserves and a drop in pipeline imports from Russia following the invasion of Ukraine. This also has electricity price increase.
Earlier this month, Ofgem announced that it would recalculate the limit every three months instead of every six months to reflect current market volatility.
Consulting Cornwall Insight forecast limit could rise to £4,649.72 in the first quarter of 2023 and to £5,341.08 in the second quarter before falling slightly to £4,767.97 in the third quarter.
That’s still up from the average £1,400 annual bill in October 2021 and the current £1,971 cap.
‘A disaster’
In July, the government announced it would pay £400 to all households over six months from October to help pay the bills, with an additional one-time payment of £650 to eight million households. vulnerable families. Some vendors have also announced support packages for customers.
However, this has been widely criticized for not addressing the scale of the problem. so with the Covid-19 pandemic and the 2008 financial crisis in terms of its impact on the population.
Jonny Marshall, senior economist at the Resolution Foundation, said: “A disaster is looming this winter as rising energy bills threaten to cause serious physical and economic damage. finance for families across the UK”.
“Of course thousands of people will find their energy completely cut off, while millions will be unable to pay their bills and incur unmanageable debts.”
Several strategies for dealing with the crisis have been put forward by politicians, think tanks and providers, but UK leadership election which means no new policy announcements have been made despite the spike in bills.
The candidates, Liz Truss and Rishi Sunak, both spoke of the need for more support for households and businesses but said no decision would be made until a new prime minister was elected on September 5. .
At a leadership meeting on Thursday night, Sunak said he would provide more “direct financial assistance” to vulnerable groups.
Truss, the current favorite to win the contest, echoes previous comments about wanting to use tax cuts to ease pressure on households, reverse tax hikes Recent national insurance and suspension of green energy collection on bills.
Necessary plan
Options on the table are said to include a price cap freeze to lower than current levels – something energy suppliers say will need to be funded through a government-supervised funding package to prevent it industry instability – or allow price caps to rise and extend household support.
Which consumer group? on Thursday said the government needed to expand household payments from £400 to £1,000, with an additional one-time minimum payment of £150 to the lowest income households, to avoid Millions of households fell into poverty.
The opposition Labor Party said it would freeze the April-October limit for the rest of winter by extending Recently applied wind tax for oil and gas companies, eliminate the common £400 payment and find other savings to freeze the limit over the winter.
Jonathan Brearley, Ofgem’s chief executive, said any response needed to be “appropriate to the scale of the crisis we have in front of us” and involving the regulator, the government Government, industry, NGOs and consumers work together.
Brearley said: “We know the huge impact this price ceiling increase will have on households across the UK and consumers will have to make tough decisions.
“The Government’s support package is providing help right now, but it is clear that the new Prime Minister will need to do much more to address the impact of the impending bull run in October and next year.
“We are working with ministers, consumer groups and industry on a range of options for the incoming Prime Minister that will require urgent action.”
“The new prime minister will need to think utopian about the policies needed to get full support where it is needed most,” said Marshall of the Resolution Foundation.
“An innovative social tariff could provide broader targeted support but entail huge delivery challenges, while a price cap freeze gives too much to those in need . of leadership debates, but a practical solution to the realities facing families this winter.”
CNBC has reached out to the government for comment.
Cost of buying gas
Emma Pinchbeck, executive director of the trade association for the energy industry Energy UK, told the BBC on Friday morning that the industry will continue to call for government intervention to help both consumers and the impact. to the broader economy.
“Most [suppliers] generating a negative margin and yes over the last few years that’s one of the reasons we lost 29 suppliers from the market. So when you look at this and the scale of this crisis, we’re talking about something much larger than the industry can handle, despite the help that has been given. out, despite charging as much as they can for the cost of buying gas. “
Pinchbeck said the industry favors a deficit tariff plan that allows suppliers to keep prices at current levels and have their costs met with a loan because it is the fastest way to do it.
Wider challenge
Faced with soaring wholesale prices and varying degrees of dependence on Russian gas, European governments are offering their own support packages.
France has completely nationalized energy supplier EDF at an estimated cost of €9.7 billion and capped electricity price increases at 4%.
German households will have to pay an additional 500 euros ($509) towards their annual gas bills through April 2024 through a tax to help utilities cover the cost of replacing supplies lost Russia, with electricity prices also rising. The government is discussing a sales tax exemption for the tax and a bailout for poorer households, but has also been criticized for not announcing adequate support.
Italy and Spain have both used taxes collected to fund a combination of grants for households in need and limit bills that have grown to unsustainable levels.
