Energy price cap set to almost double to £2,400 this year, industry leader warns

Price cap will increase twice this year, industry trade body warns

Ben Chapman
Thursday 20 January 2022 19:07 GMT
<p> Suppliers are looking to pass on the costs of soaring wholesale gas prices</p>

Suppliers are looking to pass on the costs of soaring wholesale gas prices

Energy bills could almost double by October if the price cap rises sharply for a second time, adding to a 50 per cent jump in April, an industry leader has warned.

Emma Pinchbeck, chief executive of trade body Energy UK, said the price cap could rise to £2,400 in October following an increase to "around £2,000" in April, as suppliers pass on the costs of soaring wholesale gas prices.

Ofgem’s price cap is currently £1,277 for an average household but is almost certain to rocket this year. A little over three months ago it stood at £1,138.

Addressing a media webinar on the energy bills crisis, Ms Pinchbeck said of the price rise: “We haven’t seen anything like this, not in my career or in any of the people who sit on my board.”

She said that although wholesale prices were expected to drop, “they are still three times higher than we expect to see at this time of the year, and described the situation as “enduring”.

Ofgem is due to announce the new level on 7 February, with pressure growing on Rishi Sunak, the chancellor, to announce measures to support households and deal with a crisis that has seen 27 suppliers cease trading.

Ms Pinchbeck said suppliers were currently losing between £400 and £600 a year for each of the roughly 15 million customers on standard variable tariffs, which must be kept at the price cap level or lower.

Wholesale gas prices have fallen back from record highs reached at the end of last year but remain significantly above the level of previous winters.

Markets indicate that prices are expected to remain elevated throughout 2022 and for much of next year, piling further pressure on households facing an income squeeze from tax hikes and inflation.

The chancellor is understood to be considering a range of options including an expansion of the Warm Home Discount, a £140 payment to help people on low-incomes pay for their energy.

Also being considered is a government-facilitated loan scheme for suppliers to help them absorb the current price spike without having to pass on all of the cost to customers in one go. The money could be recovered through bills over several years.

If agreed, it could allow Ofgem to keep the price cap lower than it would otherwise be. The plan has an added benefit to the Treasury in that, by lowering bills, it would hold down the rate of inflation.

Billions of pounds of government debt is linked to the inflation rate, which has jumped to a 30-year high, pushing up interest repayments the Treasury must pay to bondholders.

Suppliers and campaigners have called for more drastic action. On Thursday, the Social Market Foundation (SMF) think tank called on the government to give one-off cash payments to people unable to pay their energy bills.

The SMF’s chief economist, Dr Aveek Bhattacharya, wrote that a cheque for £300 should be sent to households that did not have a higher rate taxpayer, with an additional £200 for those on universal credit or legacy benefits.

He argued that an £8.5bn programme of direct cash payments, known as “helicopter money”, would be the simplest and most effective way of dealing with big energy price rises.

He said: “An emergency cash payment would also have the benefit of being a clear one-off intervention, whereas other proposals would risk committing the government to costly ongoing subsidies, that it would find politically difficult to end.”

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