How much will energy bill prices rise in 2022? Ofgem price cap explained, why it’s going up and who it affects
Energy prices will rise by £693 a year for millions of households from April
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Energy bills will rise by £693 per year for millions of households as Ofgem confirms the price cap will go up.
The energy regulator has hiked the price cap on bills to £1,971 or 54% from the beginning of April after gas prices soared to unprecedented highs.
For customers with prepayment meters the price cap will go up by £708 to £2,017, the regulator said.
Who will the price hike affect?
The price cap increase will affect 22 million households across the UK and applies to those who are on their energy supplier’s default tariff.
Ofgem chief executive Jonathan Brearley 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.
“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.”
Ofgem also plans to set out new rules on Friday (4 Feburary) which will allow it to change the energy price cap in between its regular six-month reviews.
The regulator pledged the power will only be used in exceptional circumstances, and five tests will have to be passed before it can step in.
The price cap had already been set at a record high in October before the worst of the gas price spike had been seen in the market.
Why is the price cap going up?
The price cap is based on the price of wholesale energy and supplier costs which have rocketed in recent months, meaning consumers are now facing huge gas and electricity bills.
Wholesale gas prices have increased by 250% since January and rose by 70% in August alone, as the energy crisis gripped firms.
The price increase was fuelled by a cold winter across Europe last year, meaning gas was being used up more quickly.
This put pressure on global supplies and gas levels in storage are much lower than normal as a result.
Additionally, unseasonably warm weather in Asia saw more households use gas for air conditioning units, again meaning more gas was burned than usual, and there has been reduced supply from Russia amid reported political moves.
Will households be offered any support?
Chancellor Rishi Sunak has said the vast majority of households will receive £350 of support to remove the “sting” from the energy crisis.
This will be offered through council tax rebates for households in bands A to D and an upfront discount on bills.
The Chancellor said the government will “step in” to help households directly manage “incredibly tough” energy costs, and promised to help with the rising cost of energy in the same way it “stood behind the British people through the pandemic”.
He told MPs on Thursday: “The price cap has meant that the impact of soaring gas prices has so far fallen predominantly on energy companies, so much so that some suppliers who could not afford to meet those extra costs have gone out of business as a result.
“It is not sustainable to keep holding the price of energy artificially low. For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest.
“But what we can do is take the sting out of a significant price shock for millions of families by making sure the increase in prices is smaller initially and spread over a longer period.”
Mr Sunak confirmed that 80% of all homes in England will benefit from a £150 council tax rebate to help with the cost of energy in April.
Setting out his plans, he told the House of Commons: “We are going to give people a £150 council tax rebate to help with the cost of energy in April and this discount won’t need to be repaid.
“And I do want to be clear with the House, that we are deliberately not just giving support to people on benefits. Lots of people on middle incomes are struggling right now, too.
“So we have decided to provide the council tax rebate to households in bands A to D. This means around 80% of all homes in England will benefit.”
He added: “And the third part of our plan will provide local authorities with a discretionary fund of nearly £150 million to help those lower income households who happen to live in higher council tax properties, and households in bands A to D who are exempt from council tax at all.”
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