Millions of households are likely to see another sharp rise in their energy bills when the new energy price cap is announced on Friday. Energy regulator Ofgem is set to announce the new price cap meaning many will see another rise in their costs from October 1, when the new rates come into effect.
In April the price cap skyrocketed by 54% from £1,277 to £1,971 per year for people who pay for their energy via direct debit. The £693 increase was driven by a record rise in global gas prices over the previous six months and a quadrupling of wholesale prices in the previous 12 months.
And experts have warned of an even bigger increase on Friday warning that many more households could be plunged into fuel poverty. Here's everything you need to know about the energy price cap including what it is, what you can expect on Friday, and what financial support is available.
What is the energy price cap?
The energy price cap limits the maximum amount suppliers can charge for each unit of gas and electricity you use and sets a maximum daily standing charge (what you pay to have your home connected to the grid). So the word 'cap' is actually misleading as there is no upper limit on what customers pay. The more energy you use the more you pay and vice versa. The price cap only applies to standard and default tariffs but not to those who are on a fixed-term energy deal. MoneySavingExpert Martin Lewis recently changed his advice on whether energy customers should opt for a fixed-rate energy tariffs. You can read what he said this week here.
The price cap is set by the UK's independent regulator Ofgem. To calculate it a number of factors are taken into account. The largest cost is the price energy suppliers are paying for gas and electricity as well as the costs of maintaining energy infrastructure and suppliers' operating costs. Much of the recent impact has been down to the ongoing war in Ukraine and Russia's decision to drastically reduce the flow of its gas to Europe.
How much is it going to go up and what will happen on Friday?
Ofgem will officially announce the next energy price cap on Friday, August 26, and it will apply to most variable tariff energy bills from October 1, 2022, to December 31, 2022. The regulator has changed its reviews, normally twice a year, to quarterly in order to respond more quickly to changes in wholesale energy prices – the biggest contributor to changes in the price cap.
It's not clear how much the energy price cap will go up but the predictions have grown increasingly more grim over the past few months. In May Ofgem chief executive Jonathan Brearley said the cap was expected to rise to around £2,800 a year. But most recently analysts Cornwall Insight predicted bills could reach £3,554 a year – a whopping 80% increase.
It means that energy bills will have gone up by 134% since August 2021 – and the outlook for the next six months doesn't look much better. This month Ofgem confirmed it was changing the review of the price cap – normally every six months – to every three months in a bid to better protect customers and the energy market in the UK which has seen almost 30 suppliers go out of business since last year.
Experts have warned the price cap could possibly reach more than £4,200 in January next year for typical use. Auxilone suggests it could even reach £4,704 next January, rising to £5,856 in April. It is important to note, however, that these are only early estimates at this stage. According to MoneySavingExpert.com the energy price cap changes will occur on the first day of January, April, July, and October. These prices will be announced on:
- November 24
- February 27
- May 26
- August 25
With many people already struggling to pay their bills research by the University of York has warned the changes this winter – when people tend to use heat more often than during the summer months – could force an estimated 45m people in Britain into fuel poverty.
What support is available if I can't pay my bills?
Both the UK and Welsh governments have a series of support packages available to help those struggling to pay their bills this winter. The Welsh Government recently announced it was extending its fuel support scheme meaning 400,000 households in Wales are set to get £200 towards keeping their homes warm this autumn and winter. The idea is to provide people with support over the winter as the cost of living crisis escalates. Previously only round 166,000 households on universal credit, legacy means-tested benefit, and working tax credits benefited from the £200. You are now eligible if you claim child tax credits, pension credits, disability benefits, carers' allowance, contributory benefits such as jobseeker's allowance and employment and support allowance (ESA), or receive help from the council tax reduction scheme.
The UK Government has also rolled out the first instalment of its £650 cost of living support scheme with more than seven million people on the lowest incomes receiving a £326 lump sum in July. A sum of £324 will be given to households by the end of October. You can receive this payment if you are on universal credit and a number of other payments. Find out more about that here.
Around six million people who receive disability benefits such as PIP and DLA will get a one-off cost of living payment of £150 by the end of September. This is not available to those on universal credit however. You can read more about that here.
As part of the cost of living support package every household in England, Scotland, and Wales will receive £400 in energy bill discounts. The support will be issued to some 29m households in six instalments over a period of six months to try and ensure people have financial support throughout the cold winter months.
The £400 discount is non-repayable and all households in England, Scotland, and Wales with a domestic electricity connection are eligible to receive the support. You can read about how this will be distributed here.
As well as these payments there is also other help available – you can get an extra £300 for your household if you qualify for the winter fuel payment and the Welsh Government has also given a £150 cost of living payment to all households who live in properties in council tax bands A to D. Councils in Wales also offer a variety of other financial supports via their discretionary funds though each council is applying it differently so it's worth checking with your local authority to see if you are eligible. Find out how each council is distributing the money here.
As well as one-off payments you might be entitled to help if you're on benefits such as through universal credit advances if you're applying for the first time or budgeting allowances. For more information on all the financial support that is available in Wales click here. To get the latest money news straight to your inbox subscribe to our dedicated newsletter here.
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