Energy bills are set to reach more than £4,200 for a typical household by next year, a consultancy has warned.
In a new dire outlook for households, Cornwall Insight said that bills are set to soar to around £3,582 in October, from £1,971 today, before rising even further in the New Year.
Martin Lewis said the amounts were “unaffordable” for millions.
Will energy prices go up again?
Ofgem is set to put the price cap at £4,266 for the average household in the three months from the beginning of January.
The energy consultancy said this is around £650 more than its previous forecast.
The price cap forecasts from Cornwall showed bills reaching £4,427 in April, before finally dropping slightly to £3,810 from July and £3,781 from October next year.
Why are prices so high?
The consultancy said Ofgem’s decision to change the price cap every three months instead of six and higher wholesale prices were among the reasons for the sharp jump.
Dr Craig Lowrey, principal consultant at Cornwall Insight said “Many may consider the changes made by Ofgem to the hedging formula, which have contributed to the predicted increase in bills, to be unwise at a time when so many people are already struggling.”
However, he also defended Ofgem’s decision, which will hopefully lead to lower bills in the second half of next year.
This will happen because Ofgem is making it easier for energy suppliers to recover their costs. By doing this, fewer suppliers will fail – and the cost of those failures will not need to be passed on to customers.
“With many energy suppliers under financial pressure, and some currently making a loss, maintaining the current timeframe for suppliers to recover their hedging costs could risk a repeat of the sizeable exodus seen in 2021,” Dr Lowrey said.
“Given that the costs of supplier failure are ultimately met by consumers through their energy bills, a change which means that this is less likely is welcome, even if the timing of it may well not be.”
Dr Lowrey said a review of support packages offered to consumers was essential.
He said: “If the £400 was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now. The government must make introducing more support over the first two quarters of 2023 a number one priority.
“In the longer-term, a social tariff or other support mechanism to target support at the most vulnerable in society are options that we at Cornwall Insight have proposed previously. Right now, the current price cap is not working for consumers, suppliers, or the economy.”
How has Martin Lewis reacted?
The consumer champion said it was “tragic news” and that the increases would leave “many destitute”.
Having been on a social media break, he broke it to react to the news, saying it was “too big and too damaging not use my platform to try and put pressure on for sensible urgent action from political powers.”
In a Twitter thread the Money Saving Expert said the Government needed to take action.
He said: “These amounts are unaffordable for millions. The Jan figure equates to 45% of the full new state pension, and a higher proportion of the old one. The rise alone on the Jan prediction, from when the help was first announced in May, is roughly £1,400/yr...
“That rise alone swallows up not just £400 help for all homes,but even the £1,200 for the poorest This will leave many destitute. Tax cuts won’t help poorest incl many elderly & disabled who’ve higher usage Cutting green levy’d be just tiny sticking plaster on a gaping wound...
“The leadership debate must not ignore this portentous national cataclysm any more. -They can’t say they weren’t warned -The excuse “we need to wait for Ofgem figure” doesn’t wash. In May govt asked Ofgem for forward guidance & made plans based on that. It can do the same now..
He ended his thread by saying “an action plan is needed TODAY” and that people’s livelihoods, mental wellbeing and in some cases “very lives depend on this”.
What else has been said?
Ofgem said: “The wholesale market continues to move extremely quickly so no forecast for next year is at all robust at this stage and will therefore have very limited value, especially for consumers who must always be the main priority.
“We cannot stop others from making predictions but we would ask that extreme caution is applied to any predictions for the price cap in January or beyond.”
Meanwhile, Morgan Wild, head of policy for Citizens Advice, said the cost-of-living crisis is already having a “devastating impact on people’s lives.”
Morgan said: “Every day we hear from people who can’t afford to turn the lights on or cook their kids a hot meal.
“The Government did the right thing by bringing in targeted support, but it won’t be enough for people to manage these previously unthinkable price hikes.
“The obvious place to start is to increase benefits to keep pace with the cost of living. There’s no time to waste.”
Rebecca McDonald, chief economist at the Joseph Rowntree Foundation urged the Government to double its support package for energy bills.
She told BBC Radio 4’s World At One programme: “The package that the former chancellor Rishi Sunak announced in May given the situation that we were expecting at that time, it was going to make a very significant dent and be a big help to families.
“But the problem is that we now know that the increases will be much, much higher than we were expecting back in May and that means that actually in terms of the adequacy of that support package it just isn’t high enough and the change is huge, so we actually think in order to provide sufficient help for low-income families that support package now needs to be doubled across the same time period.”