Energy bills to hit £4,266 in January after Ofgem changes price cap rules

Gas and electricity prices will more than double in the coming months

Ben Chapman
Tuesday 09 August 2022 10:58 BST
<p>Energy bills are set to soar further from current record highs (Rui Vieira/PA)</p>

Energy bills are set to soar further from current record highs (Rui Vieira/PA)

Energy bills for the average UK household are on course to surge to a devastating £4,266 a year in January, experts have warned.

That will come after a rise to more than £3,500 in October as the cost-of-living crisis deepens throughout this year and into 2023, according to figures from Cornwall Insight, an energy consultancy.

Ofgem is set to put the price cap at £4,266 for the average household in the three months from the beginning of January.

Cornwall Insight said that this was around £650 more than its previous forecast, thanks to large rises in the wholesale cost of gas. It also expects a further increase in April next year to before prices finally drop slightly to £3,810 from July and £3,781 from October.

It comes as Ofgem last week announced changes to how it will calculate the price cap on energy bills.

"While our price cap forecasts have been steadily rising since the summer 2022 cap was set in April, an increase of over £650 in the January predictions comes as a fresh shock," said Craig Lowrey, principal consultant at Cornwall Insight.

"The cost-of-living crisis was already top of the news agenda as more and more people face fuel poverty - this will only compound the concerns.

"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."

Ofgem announced earlier this year it would calculate the cap every three months instead of every six after a string of suppliers went bust, in part because they were not allowed to pass on rising costs to customers.

While Ofgem’s changes to its hedging formula have contributed to rising bills, the increase is largely down to the rise in wholesale energy prices, Cornwall said.

Dr Lowrey said that the Government must take action to step in and protect households from spiralling costs.

So far, the Government has promised £400 to every household, and extra help for the more vulnerable, but campaigners say this falls well short of what is required.

"If the £400 was not enough to make a dent in the impact of our previous forecast, it most certainly is not enough now," Mr Lowrey said.

He said that the current price cap is not controlling consumer prices and damaging suppliers' business models, and asked if it was fit for purpose.

"The Government must make introducing more support over the first two quarters of 2023 a number one priority.”

Boris Johnson has rejected calls for an emergency cost-of-living budget, while the two people in line to succeed him as prime minister have declined to lay out what additional support would be available for struggling families.

Liz Truss has said she favours tax cuts over “handouts”, while Rishi Sunak has indicated that more help will be needed, without stating what that might be.

Conservative former chief whip Mark Harper, a supporter of Mr Sunak in the leadership contest, said the "central question" for the country's next prime minister is how to get people through the winter, as he insisted the ex-chancellor's plan is "the right one".

Mr Harper told LBC: "I think this is going to be the central question facing whoever gets elected as prime minister on 6 September, about how we get people through the winter.

"There's a big difference here between the two candidates. So, Rishi is saying that we're now expecting energy prices to be higher than he was expecting in May when he set out that big package of support that's currently being delivered to people. He said more is going to be needed, including direct help to people.

"His opponent (Liz Truss) is saying that she's going to cut national insurance. That delivers a big tax cut to, say the prime minister, £1,810, delivers nothing to pensioners, and only £59 to somebody working full-time on the national living wage, and I just don't think that's going to cut it.”

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