Household energy bills will soar by £693 per year from the beginning of April, Ofgem has confirmed.
The energy regulator was forced to hike the energy price cap to a record £1,971 for a typical household as gas prices soared to unprecedented highs.
For customers with prepayment meters the price cap will go up by £708 to £2,017.
The decision is likely to impact 22 million households across Great Britain, and applies to those who are on their energy supplier’s default tariff.
Ofgem chief executive Jonathan Brearley said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.”
Responding to the announcement, Chancellor Rishi Sunak took to Twitter to state that the UK Government will give people in need a £350 Energy Bills Rebate, to spreads the extra costs of this year’s energy price shock.
In October, all domestic electricity customers will receive a £200 discount on their bills. People will then have five years to repay that discount in equal instalments of £40 a year.
Westminster will discount council tax bills by £150 in April. Local authorities will also get a discretionary fund of nearly £150m to help lower income households in higher council tax bands, and households in bands A-D who are exempt from council tax.
This announcement was followed by the Bank of England's Monetary Policy Committee deciding to raise interest rates again, this time to 0.5% - the first time in 18 years it has done so at two consecutive meetings - with warnings that more hikes are on the way.
Kevin Brown, communications manager at Scottish Friendly, said that the change won’t be enough to suddenly ease inflationary pressures, but it is a clear sign of intent.
“By raising rates in quick succession, the bank is showing that it is willing to act decisively to bring inflation back down, but will this soft increase be enough? It was guilty of underestimating how quickly and how severely inflation would rise last year and it’s now playing catch up.”
Ofgem also plans to on Friday set out new rules which will allow it to change the energy price cap in between its regular six-month reviews.
The regulator pledged the power will only be used in exceptional circumstances, and five tests will have to be passed before it can step in.
The price cap had already been set at a record high in October before the worst of the gas price spike had been seen in the market.
The latest rise had been largely expected by experts and companies, although the details were still to be confirmed.
Cornwall Insight, an analysis outfit, said on Wednesday that it thought the price cap would be £1,915 per household.
There are also worries about next winter, when experts predict bills could spike to as much as £2,329.
The price cap change was originally planned to be announced next Monday, but in a surprise move Ofgem moved it forward without explaining why.
Matthew Fell, the CBI's chief policy director, commented: “The rise in the price cap was inevitable, but will pile more pressure on squeezed household incomes.
“Short-term support must go hand-in-hand with a revamped retail energy market, setting a higher bar for market access and tougher stress testing for suppliers.
“Businesses too have been impacted by high-cost pressures, so steps to protect cashflow for smaller firms and heavy industry should follow today’s announcement.”
Scottish Greens energy spokesperson Mark Ruskell responded that the long-term causes of the energy price hike stem from the Conservative Party ‘cutting the green crap’ under David Cameron, which led to an over-reliance on gas to heat homes, alongside a failure to properly invest in renewable energy and home insulation.
“Most people simply cannot afford a 54% increase in their energy bills - Tory proposals to offer loans to cover the costs or to spread the costs over future bills simply won’t do, especially when there is no certainty about future prices.
“The public have a right to expect serious answers from the UK Government in the face of this crisis, but there seems little sign of those coming any time soon.”
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