Ofgem raises energy price cap by 80% to £3,549 from October

Households in Great Britain face a leap in energy bills from October after the regulator raised the energy price cap, taking the average gas and electricity bill to £3,549 a year.

In a blow for hard-pressed consumers already struggling with soaring inflation, Ofgem approved the £1,578 increase on the current figure of £1,971 for the average dual-fuel tariff – a rise of 80%.

The cap will be almost treble what it was a year earlier last October, when it was raised to £1,277.

The announcement comes as households attempt to budget for a tough winter. Soaring energy bills have fuelled rampant inflation, which breached 10% last month and is forecast by some economists to climb to 18% from January.

The next cap will be introduced in January. The energy consultancy firm Cornwall Insight on Friday raised its forecasts for that announcement to £5,387, from a previous prediction of £4,650, while it increased its estimate for the April cap to £6,616, up from £5,341.

Ofgem said it will not give projections for the January measure because the market remains “too volatile” but warned that prices “could get significantly worse through 2023”. The new cap will affect 24 million households – about 85% of the population.

That number includes about 4.5 million prepayment meter customers, who will pay on average an additional £59 a year.

Ofgem’s announcement will pile further pressure on the government to urgently introduce further measures to help households this winter. The victor in the Tory leadership contest between Liz Truss and Rishi Sunak is expected to announce a plan shortly after the race’s conclusion on 5 September.

Price cap graphic

Jonathan Brearley, the chief executive of Ofgem, said: “We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many.”

Brearley said Russia’s invasion of Ukraine and reduction of gas supplies to Europe had driven the rise in wholesale gas prices. He said that had left Ofgem “no choice” but to reflect cost increases in the price cap.

He added: “The government support package is delivering help right now but it’s clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year.

“We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action.”

Brearley told BBC Radio 4’s Today programme that “the truth is, this is beyond the capacity of the regulator and the industry to address”. He said the next prime minister needs “to act urgently and decisively” to tackle the situation.

The Ofgem boss said winter gas prices were 15 times higher than normal conditions, and were equivalent to paying £400 to £500 to fill up a car with petrol.

He advised people struggling with their bills to contact their energy company “proactively”.

A government spokesperson said the civil service was “making the appropriate preparations in order to ensure that any additional support or commitments on cost of living can be delivered as quickly as possible when the new prime minister is in place”.

‘Crisis hotspots’ graphic

The consumer champion Martin Lewis called on the next prime minister to announce a new package as soon as possible. He said: “We must hope that when we have somebody in place they will come up with a robust, firm, strong policy that we can all get behind that feeds people and heats people so that we don’t have people dying because of these price caps this winter. That’s what my fingers are crossed tightly for.”

The price cap is not a maximum bill a household can be charged and merely sets a limit on standing charges and the price that be charged per unit, so bills could be even higher for above average energy users. Lewis said there was “nothing stopping somebody from paying £10,000 a year”.

Isaac Delestre, a research economist at the Institute for Fiscal Studies thinktank, said the new cap means “typical bills for this financial year will be 27% higher than what had been expected when the last support package was announced in May”.

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The £3,549 benchmark will take effect from 1 October 2022 but Ofgem said it is possible some suppliers may begin increasing direct debits before this date to spread the cost.

The price cap was introduced in 2019 in an effort to protect customers from being ripped off. However, rising wholesale gas costs caused a string of energy suppliers to go bust as they were squeezed by the cap, unable to pass on those costs to customers.

Earlier this month, the energy regulator confirmed the cap would be reviewed quarterly rather than every six months. Ofgem said the change would allow it to “adjust much more quickly” to volatility in the market. Some industry watchers have questioned whether the cap is viable in the long term.