‘Shop around’ as price cap adds £12 to monthly average British energy bill
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British regulator Ofgem has confirmed that the energy price cap has risen 10% to £1,717.
The maximum price for the average dual fuel energy tariff will rise from 1 October, Ofgem said. It will add about £12 per month to the standard fuel bill.
Ofgem’s price cap sets a maximum rate per unit and standing charge that can be billed to customers for their energy use – so the £1,717 number is only indicative, and households could pay more if they use more energy.
The regulator said:
Rising prices on the international energy market – due to increasing geopolitical tensions and extreme weather events driving competition for gas – are the primary cause of the rise, accounting for 82% of the increase.
It comes with the Gaza crisis threatening to spill out into a broader war between Israel and Hezbollah in Lebanon, and Ukraine’s surprise incursion into Russian territory.
The price cap has effectively set prices across households since the start of the energy crisis that was triggered by the war in Ukraine. However, Ofgem told consumers to “shop around”, as some households could now potentially save money.
Jonathan Brearley, chief executive of Ofgem, said:
We know that this rise in the price cap is going to be extremely difficult for many households. Anyone who is struggling to pay their bill should make sure they have access to all the benefits they are entitled to, particularly pension credit, and contact their energy company for further help and support.
I’d also encourage people to shop around and consider fixing if there is a tariff that’s right for you – there are options available that could save you money, while also offering the security of a rate that won’t change for a fixed period.
Key events
Four in 10 consumers are still having to cut back their non-essential spending due to the cost of living, according to KPMG, an accountant.
Ofgem told British consumers to “shop around”. But that message has not quite got through to households, who are hard-pressed.
Simon Virley, vice chair and head of energy and natural resources at KPMG UK, said:
Rising energy prices will be a huge concern for the many households who are not on fixed deals just as we enter the winter months. Average dual fuel bills remain well above the levels prior to Russia’s invasion of Ukraine and the fact that prices remain slightly below the levels of last winter will be of little comfort to those households.
Switching appetite remains well below the levels seen before the price cap was even introduced. The price cap has effectively become the default tariff over the past 18 months, which limits the incentives for investment and innovation. So, it is important that reform of the retail market remains a priority for the government and the regulator if we want to reap the benefits of a smarter, greener energy system.
The UK’s reliance on imports of fossil fuels – particularly gas – means it is vulnerable to rising global wholesale prices, according to Cornwall Insight, a consultancy.
Cornwall regularly tracks the price cap, using the same calculations as Ofgem to work out where the price cap will be ahead of time. Prices are due to rise further this winter, Corwall said.
The January 2025 cap is projected to rise by an additional £45 to £1,762. This would mark a 3% increase from October’s cap.
Craig Lowrey, principal consultant at Cornwall Insight, said:
As we move into the colder months, a lift in bills, while expected, is certainly not welcome. Unfortunately, a volatile wholesale market, and a country heavily reliant on imported energy has created a perfect storm for fluctuating household bills.
Today’s announcement, coupled with our forecasted energy price hikes in the new year, will only intensify the calls for government action to protect vulnerable households. There is a range of options available for the new government, from social tariffs to targeted support. But with just over a month until the cap increases – coupled with the fact that Parliament in on its summer recess – time is not on their side.
The increase is also likely to reignite the debate over the effectiveness of the cap. While brought in with good intentions, it was only meant as a temporary measure, and some may argue the cap has served its purpose. One thing is clear: the current system is not meeting the needs of households, and without change, this risks being the case on an enduring basis.
It would be unrealistic to expect the market to simply correct itself and return to pre-crisis price levels, especially as bills remain far from historic norms three years on. We hope that Ofgem’s review of the cap, along with a renewed focus on renewable energy by the government, will provide viable solutions, helping to deliver fair and sustainable energy bills for everyone.
The regulator may have said the average energy bill will rise by £12 a month, or £144 a year, but that average masks a lot of variation.
The properties with the worst energy efficiency – a G rating – could rise by as much as £558 a year, according to calculations by Rightmove, a property website. That would leave average bills for those households at £6,140.
By contrast, the most efficient, A-rated properties could pay only £620 annually – so prices would rise by only £56 annually.
Of course, the standard health warning: all of these numbers are average numbers, but the price cap is based on the unit rate, which is actually what is capped. So households can spend more or less than the cap, depending on what energy they use.
Tim Bannister, Rightmove’s property expert, said:
The rising price of energy in recent years means that renters and homeowners are likely having to closely consider their total monthly outgoings when choosing their next home. We know that lower bills is one of the biggest motivators for people to go greener, so we expect over time people will increasingly seek out more energy efficient properties in order to keep bills down over the long-term.
Our research suggests that if something like a dynamic price cap, where energy is cheaper at less popular times of day, was to be introduced, the majority would welcome it if it meant lower bills.
Ofgem’s boss has outlined that there are no easy answers on how to cut energy bills, including via standing charge reform.
Standing charges have increased in recent months, and unlike with energy use, households have no ability to change their usage.
Jonathan Brearley, Ofgem’s chief executive, said:
We are working with government, suppliers, charities and consumer groups to do everything we can to support customers, including longer term standing charge reform, and steps to tackle debt and affordability.
Options such as changing how standing charges are paid and getting suppliers to offer more tariff choices and give customers more control are all on the table, but there are no silver bullets. Any change could leave some low-income households worse off, so it’s important we hear views on our proposals and continue working with the government to see what targeted support could help customers.
Ultimately the price rise we are announcing today is driven by our reliance on a volatile global gas market that is too easily influenced by unforeseen international events and the actions of aggressive states. Building a homegrown renewable energy system is the key to lowering bills and creating a sustainable and secure market that works for customers.
Scrapping standing charges could raise energy bills by 10% for 500,000 poorer households
Britain’s energy regulator has said that half a million low-income households could see bills rise 10% if it scraps standing charges, which apply to every household regardless of whether they use any energy.
Ofgem has revealed options to change the Great Britain’s much-criticised energy standing charges. They are seen by many people as unfair, because they apply even when households use no energy.
The regulator said:
The short-term option[s] presented by the regulator include an option to move between £20 and £100 from the standing charge to the unit rate (the price paid for every unit of energy used), giving customers the opportunity to save money by lowering their usage.
However, it added that some vulnerable households could be hit with higher bills if standing charges are shifted into unit costs for energy.
While this option could see some households make savings, Ofgem recognises the significantly higher impact a unit rate increase could have on customers who cannot safely cut their energy use due to dependency on life saving medical equipment or living in a low standard of housing with poor insulation. Analysis by the regulator on scrapping the standing charge and moving all costs to the unit rate also suggests around half a million low income households would see bills increase by around 10 percent.
The regulator is looking at longer-term options including abolishing standing charges, after two-thirds of 30,000 respondents to its call for feedback said the charges should go.
Ofgem said that “there are constraints to how far we can reduce standing charges in the short term”.
Thames Water monitors to stay in place until credit rating improves
It has been a busy morning for Great Britain’s utilties regulators: water watchdog Ofwat has also confirmed that troubled Thames Water will have to appoint independent monitors after breaching its licence conditions.
The water company will only be allowed to remove the monitors once it regains two investment-grade credit ratings – a requirement that suggests there is no end in sight for the monitoring period.
Thames Water’s rating was downgraded to junk status by agencies S&P and Moody’s in July, putting it in breach of its licence conditions.
Ofwat also confirmed that Thames Water, which supplies water to much of southeast England and all of London, has committed to “taking the steps required to deliver an equity raise” and “developing and delivering a suitable operational business plan to achieve turnaround”.
In practice it is unclear whether Thames will be able to meet these commitments in time to save it from running out of money.
The UK’s biggest water company, which has a £15.2bn debt mountain, has said it has enough cash to continue trading until at least May 2025. If it fails to secure new investment it could be placed into a special, government-handled administration.
‘Shop around’ as price cap adds £12 to monthly average British energy bill
Good morning, and welcome to our live, rolling coverage of business, economic and financial markets.
British regulator Ofgem has confirmed that the energy price cap has risen 10% to £1,717.
The maximum price for the average dual fuel energy tariff will rise from 1 October, Ofgem said. It will add about £12 per month to the standard fuel bill.
Ofgem’s price cap sets a maximum rate per unit and standing charge that can be billed to customers for their energy use – so the £1,717 number is only indicative, and households could pay more if they use more energy.
The regulator said:
Rising prices on the international energy market – due to increasing geopolitical tensions and extreme weather events driving competition for gas – are the primary cause of the rise, accounting for 82% of the increase.
It comes with the Gaza crisis threatening to spill out into a broader war between Israel and Hezbollah in Lebanon, and Ukraine’s surprise incursion into Russian territory.
The price cap has effectively set prices across households since the start of the energy crisis that was triggered by the war in Ukraine. However, Ofgem told consumers to “shop around”, as some households could now potentially save money.
Jonathan Brearley, chief executive of Ofgem, said:
We know that this rise in the price cap is going to be extremely difficult for many households. Anyone who is struggling to pay their bill should make sure they have access to all the benefits they are entitled to, particularly pension credit, and contact their energy company for further help and support.
I’d also encourage people to shop around and consider fixing if there is a tariff that’s right for you – there are options available that could save you money, while also offering the security of a rate that won’t change for a fixed period.