UK’s price cap increase – a massive blow to consumers
UK energy regulator Ofgem has announced that the energy price cap will increase from 1 April for approximately 22 million customers.
This will mean that those on default tariffs paying by direct debit will see an increase of £693 ($940) per year and prepayment customers will see an increase of £708 ($961).
The price cap increase is the result of record-high gas prices experienced over the past six months, according to Ofgem, and will place even further strain on consumers already struggling with rising inflation and tax increases.
Jonathan Brearley, chief executive of Ofgem, 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.
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“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”
The price cap is a mechanism designed to prevent energy companies from charging excessive rates for energy.
Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place.
The mechanism allows energy companies to pass on these higher costs from April when the new level takes effect, ensuring suppliers don’t sell electricity for less than they paid for it.
Over the last year, 29 energy companies have exited the market or been put in special administration in the wake of soaring global gas prices, affecting around 4.3 million domestic customers.
Chancellor Rishi Sunak delivered a statement in response to the increased price cap, committing to support the public with just over £9 billion ($12 billion), equating to about £350 ($475) per household. “Without government action, this would be incredibly tough for millions of hardworking families. So the government is going to step in to directly help people manage those extra costs.”
In response to Sunak’s pledge of assistance, Richard Neudegg, Head of Regulation at Uswitch.com, said: “This combined £350 package appears weighty on the surface but will not provide instant relief to bills come April and still leaves a sharp £343 average energy bill increase that households will be worried about.
“The £200 energy bill credit will be a useful boost for households in a time of crisis, but this won’t be implemented until October when energy bills may be even higher. Make no mistake, customers will have to find the funds to pay for it over five years – this is a loan, not a gift.”
