Energy bills set to rocket to £3,549 as price cap rises
Millions of households will see their bills increase from October
Last updated 26th Aug 2022
The average energy bill is going to be £3,549 from October as the energy price cap was raised again today.
Ofgem has announced that the price cap is increasing by £1,578 for an average home from its current figure of £1,971, a rise of 80%.
The new price cap comes into effect on the 1st October for around 24 million households in England, Scotland and Wales on default energy tariffs.
The price cap has already been raised this year, in April it went up by 54% to a record £1,971 per year for the average household.
Jonathan Brearley, CEO of Ofgem, said:
“The price of energy has reached record levels driven by an aggressive economic act by the Russian state. They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap.
“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."
Price increase could leave 13 million people struggling to pay bills
There is concern from Citizen's Advice that around 13 million people in the UK will be struggling to pay their energy bills this winter now the cap has been raised.
Principal Policy Manager at Citizen's Advice Rachel Beddow told our Senior Correspondent Mick Coyle: "Already, daily, we're seeing people having to make the choice between giving the kids a hot bath or giving the kids food"
What is the energy price cap?
The energy price cap limits what energy companies can charge for each unit of electricity and gas and what they can charge as a daily standing rate.
While that means there is a maximum cost to your energy, there isn't an overall cap on your bill, the more you use, the more you'll have to pay.
The cap was introduced by regulator Ofgem in January 2019 to stop customers from being charged too much.
The cap is largely based on wholesale prices and as those prices have risen significantly, so has the price cap.
When does the new energy price cap take effect?
The announcement today will take effect on 1st October, but earlier this month Ofgem announced that rather than reviewing the price cap every six months, it will now be reviewed every three months.
That means that the cap announced today will run from 1st October to 31st December, with another price review for the next quarter, with many predicting we will see another price rise.
What is the government doing about the cost of energy?
No immediate extra help will be announced by Boris Johnson’s Government, with major financial decisions being postponed until either Liz Truss or Rishi Sunak is in No 10 following the Tory leadership contest.
Mr Sunak has pledged to remove VAT from energy bills, while Ms Truss has promised to cut green levies.
Before Mr Johnson announced he was stepping down as Prime Minister, the government announced a new support package for families.
This included £400 off every bill, and further support for pensioners and people on benefits.
Chancellor Nadhim Zahawi said the Government was working to develop more options to support households.
“I know the energy price cap announcement this morning will cause stress and anxiety for many people, but help is coming with £400 off energy bills for all, the second instalment of a £650 payment for vulnerable households, and £300 for all pensioners,” he said.
“While Putin is driving up energy prices in revenge for our support of Ukraine’s brave struggle for freedom, I am working flat out to develop options for further support.
“This will mean the incoming prime minister can hit the ground running and deliver support to those who need it most, as soon as possible.”
You can check what support is available on the government's website.
The cost of living crisis
Interest rates and inflation go up
Inflation rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022. With interest rates also rising to 4%, those saving money will earn more interest on their finances, whilst those paying mortgages would pay more interest to the bank.
Energy bills
The price of energy went up incredibly as the cost of living crisis hit, with the gas price spike caused largely by the war in Ukraine. The price cap - which is set by an independent regulator to help offset costs onto customers - was set to rise to £3,549 for an average home in October but a price freeze from the government restricted the typical bill to £2,500. That's still an increase of 27% from the previous energy cap and as it's a cap on unit cost, the more energy you use the higher your bill will be.
Food prices
The cost of a weekly shop also has gone up as a result of the cost of living crisis. As a result of the war in Ukraine, a number of products including cooking oils and wheat have been disrupted. This means that several products are now considerably more expensive, driving bills up for customers.
Prices at the pumps
The average cost of petrol has also rose to unprecedented levels. Supply lines for petrol have been thrown into doubt as a result of the war in Ukraine, as Russia is a large export partner for gas, oil and fuel. In April 2022, the average price for a litre of petrol on the forecourt was 160.2p, whilst a litre of diesel would cost 170.5p. By late June 2022 the price had risen to an average of 190.9p for a litre of unleaded and 198.9p for a litre of diesel. In March 2023 the price wass on average of 147.03 in petrol and 167.04 in diesel.
Average cost of filling up a car with petrol hits £100
On 9th June 2022, the average cost of filling up a car with petrol hit £100 for the first time ever. Diesel had already hit that milestone. It comes as the cost of fuel hit a record high of one pound eighty a litre. The 2p rise was the biggest daily jump in 17 years. Prices have dropped by at least 20p per litre since the high point.