Energy executives have confirmed that the energy price cap will once again be rising in October amid an already soaring cost of living crisis.
Ofgem chief executive Jonothan Brearley has told the Business, Energy and Industrial Strategy Committee that the regulator is expecting an energy price cap "in the region of £2,800". He noted how conditions have worsened in the global gas market.
The main issue concerning the global market appears to be Russia's invasion of Ukraine, according to the executive. “I am afraid to say conditions have worsened in the global gas market since Russia’s invasion of Ukraine. Gas prices are higher and highly volatile. At times they have now reached over 10 times their normal level," he said.
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He continued: “I know this is a very distressing time for customers but I do need to be clear with this committee, with customers and with the government about the likely price implications for October. Therefore later today I will be writing to the Chancellor to give him our latest estimates of the price cap uplift.
“This is uncertain, we are only part way through the price cap window, but we are expecting a price cap in October in the region of £2,800.”
Ofgem’s prediction is a huge leap from April’s price cap, which went up by £693 a year to £1,971. - an increase of 54 per cent. Mr Brearley said future scenarios could include energy prices going even higher if Russia further disrupts gas supplies.
Downing Street acknowledged that energy prices were a “significant challenge”. The Prime Minister’s official spokesman said some of the help from the government was “phased throughout the year”.
They said: “Some of the support is designed to come in in October, £200 will be discounted from energy bills, the warm home discount will increase to £150 and be expanded to cover three million people, cold weather payments and winter fuel payments will be available again."
The government is also “actively looking at what more could be done in this space, that’s something that the Chancellor and Prime Minister are focused on”, they added.
Money and savings expert Martin Lewis said an increase to £2,800 would see the energy price cap rise by 42 per cent. He described the situation as "bloody awful".
"I'm glad he's been open about this, I asked last week for them to publish forward guidance. This is higher than analysts predictions of £2,600 (both bloody awful though)," he tweeted.
In recent days, political pressure has mounted on the UK government to introduce a windfall tax on energy corporations to support customers facing soaring energy bills. Mr Johnson has so far disregarded the calls, saying he is “not attracted” to the idea of new taxes. The prime minister did however say that there would be further support to assist with the rising cost-of-living.
“No option is off the table, let’s be absolutely clear about that," Mr Johnson said. “I’m not attracted, intrinsically, to new taxes. But as I have said throughout, we have got to do what we can, and we will, to look after people through the aftershocks of Covid, through the current pressures on energy prices that we are seeing post-Covid and with what’s going on in Russia and we are going to put our arms round people, just as we did during the pandemic.”
Pressure for a windfall tax has come from Labour but also from some senior Tories. Conservative MP and former Treasury minister Jesse Norman, pointing out that former prime minister Margaret Thatcher used windfall taxes during her tenure in No 10, told Today: “A windfall tax justification in part rests on the widespread need that we are going to need to support people, and recognition of that. And we’re going to do that, I hope, quite comprehensively, because that’s what’s going to be needed.”
However, a leading energy chief has warned that a windfall tax enforced on oil and gas companies would “undermine” the transition towards energy security. Deirdre Michie, Offshore Energies UK (OEUK) chief executive, said a new tax could be detrimental to Britain’s net zero aims, adding: "We have an environmental emergency to deal with".
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