Households are set to pay an additional £221 each year as Ofgem's energy price cap rises by 13% from 1 July, driven by the ongoing conflict in the Middle East, the regulator has announced.
The jump equates to a rise of £18 a month for the average household using both electricity and gas, with gas bills increasing by 24% and electricity bills by 5%. This means households will likely spend an extra £221 on their energy bills, described as "deeply unwelcome news" by Energy Secretary Ed Miliband. The current price cap for a typical household paying by direct debit for gas and electricity is £1,641.
What is Ofgem's energy price cap?
The energy price cap is the maximum amount energy suppliers can charge for each unit of energy for households on a standard variable tariff. It is not the maximum annual charge or a fixed rate, but an indication of the average amount households with typical consumption can expect to pay. In practice, the cap limits the amount providers can charge per unit (kWh) or as a daily standing charge. Actual bills depend on location, payment method, and meter type.
Introduced by the government in 2019, the price cap ensures bills reflect energy costs and is updated every three months. Currently, 40% of accounts (22 million) are on fixed tariffs and are unaffected by this rise.
Why is the energy price cap going up?
The increase stems from global market volatility caused by Donald Trump's war in Iran and the blockage of the Strait of Hormuz, through which a fifth of the world's oil and gas passes. Wholesale energy prices have soared as the passage remains blocked. Households have yet to feel the full impact, as the cap is reviewed quarterly, and April saw a 7% drop due to government measures, including moving 75% of renewables obligation costs from bills to general taxation and scrapping the energy company obligation scheme.
While households are largely shielded over the summer, concerns grow over a painful hit when the cap is reviewed in October, as energy demand rises in colder months. Cornwall Insight forecasts the October cap will be similar to July's, even if the conflict ends soon, due to infrastructure damage and disrupted supply.
What has the government said?
Calls are mounting for action to support the most vulnerable, but Chancellor Rachel Reeves stopped short of immediate energy measures in her cost-of-living plan. She told MPs: "We stand ready to act if market conditions worsen significantly later this year and I have been leading cross-Government contingency work on design of potential future targeted and temporary support for businesses."
Energy Secretary Ed Miliband said: "The rise in the price cap because of a war we did not choose is deeply unwelcome news for households across the country. We know people were under pressure before this crisis, and that’s why easing that burden is our number one priority. We will continue to monitor the situation ahead of the winter and plan for all contingencies. In the immediate term it is essential to de-escalate this conflict to bring oil and gas prices down and as Britain faces the second fossil fuel crisis of this decade, we must learn the right lessons. The way to get bills down for good and avoid these price spikes is to go further and faster with this government’s drive for clean homegrown power we control. We are upgrading as many homes as possible ahead of winter with the biggest investment in warm homes in British history."
