Households in England, Scotland and Wales are set to face estimated charges of £1,906 for gas and electricity from October 1, according to analytics firm Cornwall Insight, despite a six-month VAT cut on electricity that gives £45 back on bills.
VAT cut overshadowed by price cap rise
New Prime Minister Andy Burnham this week announced a cut to VAT on electricity bills to reduce cost-of-living pressures, expected to take off £45 from a typical home’s annual bill under Ofgem’s current price cap. “I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as Prime Minister,” Mr Burnham said.
However, the price cap is forecast by experts to rise by 2% in October from £1,862 to £1,906 a year, largely driven by continuing instability in the Middle East. Cornwall Insight’s estimated figure of £1,906 already includes the £45 handed back to households by the VAT cut.
Regional differences and cap details
Due to Brexit agreement rules, Northern Ireland does not benefit from the VAT cut on energy bills. Instead, the Northern Ireland Executive will receive funding for cost-of-living support. If energy regulator Ofgem sets the cap at £1,906, it would represent an increase of about £44 on the current cap’s £1,862 figure.
The price cap figure is an estimate based on a household’s typical use, representing the average amount a typical use household would pay based on the sum of the unit rates and standing charges in the period, for those not on a fixed deal but staying on the standard variable tariff for gas and electricity.
Wholesale costs and bank support
The cap is affected by the cost of wholesale gas, and when wholesale prices rise, such as during the recent conflict in the Middle East, the increase in rates has a knock-on effect on bills. Ofgem will announce the final confirmed figures for the next price cap towards the end of August.
Santander UK on Wednesday revealed it has reached out to almost 150,000 customers it expects to be most severely affected by soaring energy costs amid the fallout from the Iran war. The high street lending giant said it identified 146,000 vulnerable customers who are likely to be spending more than 10% of their monthly income on energy payments following the increase to the energy price cap in July.
