Ofgem announces £693 increase in energy price cap
The 54% increase will come into force from 1st April
Last updated 27th May 2022
Energy regulator Ofgem has announced a 54% rise in the energy price cap, the maximum amount per unit for power that suppliers can charge in Great Britain, amid soaring wholesale gas prices.
The rise will come into force from 1st April as the price cap on energy bills is updated for the next six months.
With the £693 increase, the average annual energy bill could come to around £2,000 for 22 million households, up from about £1,300.
The Bank of England has also raised its base rate of interest from 0.25% to 0.5% with its forecasts likely to show rampant inflation this spring.
Ofgem said the energy price cap rise is driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year.
Rishi Sunak confirms support for poorer households
Chancellor Rishi Sunak has announced the vast majority of households will receive £350 of support to remove the "sting" from the energy crisis.
It will be through council tax rebates for households in bands A to D and an upfront discount on bills.
He promised that all 28 million households in Britain would get a £200 up-front rebate on their energy bills from October.
The Government will fund this, but it wants the money back so will hike bills by £40 per year over the next five years from 2023 to recoup its cash. If all goes to plan, wholesale energy prices will drop so households can pay back what they owe, without a major rise in bills.
Mr Sunak also promised a £150 council tax rebate for homes in bands A to D, something he said would cover around 80% of homes in England. He also promised £144 million to councils to support vulnerable people.
"The price cap has meant that the impact of soaring gas prices has so far fallen predominantly on energy companies," the Chancellor told MPs.
"So much so that some suppliers who couldn't afford to meet those extra costs have gone out of business as a result.
"It is not sustainable to keep holding the price of energy artificially low.
"For me to stand here and pretend we don't have to adjust to paying higher prices would be wrong and dishonest.
"But what we can do is take the sting out of a significant price shock for millions of families by making sure that the increase in prices is smaller initially and spread over a longer period."
Ofgem to announce further measures
Ofgem chief 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.
"Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future."
Tomorrow (4th February), Ofgem is expected to announce new rules tomorrow 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.
There are also worries about next winter when experts predict bills could spike to as much as £2,329.