Energy price cap: how high will bills rise and what government support is available?

The price cap for the average energy bill will jump by £693 this year but there are loans and tax rebates to help cover some of the cost

Ben Chapman
Thursday 03 February 2022 15:30 GMT
Rishi Sunak announced loans to cover part of the energy price increase (UK Parliament/Jessica Taylor/PA)
Rishi Sunak announced loans to cover part of the energy price increase (UK Parliament/Jessica Taylor/PA) (PA Media)

Energy bills are about to jump significantly after regulators raised the price cap which sets the maximum suppliers can charge.

But what does it mean for household budgets?

How much will my gas and electricity bills increase?

The energy price cap will increase by 54 per cent from 1 April for approximately 22 million customers.

Ofgem calculates this means the average household will pay £1,971 for their gas and electricity for the year. That’s an increase of £693.

An average pre-payment customer will see an increase of £708 from £1,309 to £2,017 a year.

It won’t apply if you are on a fixed-term energy tariff, in which case your existing rate will continue to apply until the deal ends.

The price cap sets the top rate suppliers can charge per unit of gas and electricity. It is not a cap on customers’ overall energy bills, which will still rise or fall depending on energy consumption.

From 1 April, electricity costs are capped at 28p per kWh for electricity and 7p per kWh for gas. Businesses on commercial contracts are not protected by a cap.

Unless wholesale energy prices fall, the cap will increase again in October, with experts forecasting it will hit £2,300.

What financial support has the government announced?

Rishi Sunak revealed that the government will give an upfront £200 discount to all domestic energy customers from October.

It will be automatically taken off people's bills, with the government loaning the money to suppliers to cover the costs. Pre-payment customers will receive £200 credit.

That money will then be repaid in annual instalments of £40 added to customers' bills over five years from 2023.

It means the overall burden on bills will not be reduced but will be paid over a longer period.

The government is banking on wholesale energy costs eventually coming down but markets indicate gas prices will remain elevated until at least the end of next year.

Based on current prices, experts forecast that the price can will jump to around £2,300 in October when the £200 discount is to be applied, meaning it will cover less than one fifth of the £1,000 increase compared current prices.

It is also universal, meaning that it will apply to all households, whatever their financial circumstances. A number of charities and think tanks had called for cash to be targeted at those most in need.

Council tax rebates

Around 80 per cent of households will also get £150 off their council tax bill. A rebate will be applied in April to all residential properties in England rated A to D for council tax.

Equivalent funding worth £56m in total will be supplied to devolved administrations in Wales, Scotland and Northern Ireland.

You do not have to apply for the rebate. It will be applied automatically.

While the move will be welcomed, critics have pointed out that it is poorly targeted. Council tax bands were calculated in 1991 and are a poor indicator of people's incomes.

Millions of the UK's highest earners will pay less tax while many of those in lower income groups will be left out. Those that don’t pay Council Tax (such as students, some tenants and some benefit claimants) won’t get the full package of support either.

Campaigners had called for money to be distributed through the universal credit system to ensure the poorest groups benefited most. The government rejected that approach and also declined to cut VAT on fuel bills from 5 per cent to zero, arguing that the measure would have benefitted wealthy households most.

Discretionary fund

There is also a £144m discretionary fund which councils in England can allocate to people who are on low incomes but who do not automatically qualify for a rebate because they are not in a band A to D property, or because they don’t pay council tax at all.

Speak to your local authority to see if you are eligible.

Warm homes discount

The government will go ahead with planned expansion of the warm homes discount which it says will increase the number of people eligible by one third - around 780,000 families.

The £140 per year payment for low-income families in England and Wales will increase to £150 next winter. If you are elligible you can apply for the discount through your energy supplier.

The Resolution Foundation said the measures do not provide enough help for people on low incomes to deal with price rises.

The think tank estimates that, as a result, the number of people struggling to pay for enough energy this year will double to five million this year.

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