More than four million households remaining on a standard energy tariff are set to see their bills climb from Thursday, as Ofgem's price cap rises by 4%. The increase will push the average energy bill for households in England, Scotland and Wales paying by direct debit for gas and electricity to £1,723, an increase of £5 per month or £60 annually if sustained over a full 12 months.
Why bills are rising now
The rise comes at a particularly challenging time, just as falling temperatures prompt many to switch on their central heating. The October 1 increase to Ofgem's price cap incorporates the Government's decision to scrap VAT on household electricity bills, which also comes into effect from Thursday.
The removal of the 5% levy until 31st March next year will save the average bill payer around £45 annually, according to Government estimates. The policy was among Andy Burnham's first actions as Prime Minister to alleviate household bills, announced in July the day after he assumed office. Households will, however, continue to pay 5% VAT on gas.
Global factors and market volatility
Ofgem stated that the rise to its price cap reflected elevated wholesale gas prices resulting from the ongoing conflict in the Middle East, with volatile global markets remaining the primary driver of price fluctuations. The US-Iran conflict has also contributed by pushing up energy costs globally. The blockage of the Strait of Hormuz – a crucial oil shipping route – has caused the price of fuel and electricity to surge at a rate last witnessed following Russia's invasion of Ukraine.
Comparison website Uswitch has urged households without smart meters to submit readings to their supplier before the end of the month, to avoid being charged higher rates for energy consumed prior to October 1. Households on a standard tariff with typical consumption are anticipated to spend £145 on energy in October, compared with £109 in September.
Impact on vulnerable households
The rise of a third is attributed to a combination of greater usage owing to cooler weather and higher unit rates under the latest price cap. The energy regulator will reveal its next price cap, covering January to March 2027, in November.
National Energy Action chief executive Adam Scorer said: "This latest price cap rise, just before winter, means there is simply no light at the end of the tunnel for vulnerable and low-income households. In fact, if forecasts for the January 2027 price cap are correct, then it's set to get a whole lot darker in the new year.
"The headline price cap figure is already bad, but it doesn't reflect the even worse reality for millions of fuel poor households. Our evidence shows vulnerable and low-income households already skipping food and heating even before this next price cap rise and temperatures start to drop.
"The Autumn Budget must deliver additional targeted support for households most at risk this winter, alongside action to tackle energy debt and improve the least energy efficient homes."
Ofgem reviews the price cap for households every three months, primarily based on wholesale energy market costs. Introduced by the Government in January 2019, the energy price cap sets a ceiling on the amount energy suppliers can charge consumers in England, Scotland and Wales for each kilowatt hour (kWh) of energy used. However, it does not place a limit on total bills, as householders continue to pay for however much energy they actually consume.
