The energy price cap will rise by 4% from October 1 for a typical household in England, Scotland and Wales, Ofgem has said, pushing bills to their highest level in three years just as households begin to use their heating more regularly.
Ofgem said the price cap will rise by £60 per year – or £5 per month – to £1,723 for the average household using both electricity and gas if this level was sustained for a year.
International gas prices drive the rise
Neil Kenward, Ofgem’s director general for markets, said: “High international gas prices are continuing to drive energy costs in the UK. We welcome the Government’s intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter.
“Savings are available by choosing a fixed tariff, which are available at £100 or more below the October price cap, and many suppliers offer tariffs with cheaper electricity to smart meter customers for electricity consumed out of peak times. It’s also worth considering different payment methods, with prepayment customers paying the lowest price cap rates, and could save consumers an average of about £45 compared to direct debit.”
Government response and VAT cut
Reacting to the energy price cap rise, Energy Secretary Miatta Fahnbulleh said: “Families will be understandably concerned about the cost of energy bills this winter, which is being driven up by the Iran war. Energy is an everyday essential and it needs to be affordable for everyone, which is why we have cut VAT on electricity bills from October, to give families some breathing space.
“This has limited the rise in the price cap and follows the £150 in costs we removed from bills earlier this year, and we will keep looking at what more we can do to protect families from unaffordable bills.”
Analysts point to Middle East conflict and heatwaves
Analysts said the increase is driven by continued uncertainty linked to the Middle East conflict, which has pushed wholesale energy prices higher. The ongoing heatwaves across Europe have added further pressure by increasing gas demand for power generation to meet air conditioning and cooling demand.
Experts at Cornwall Insight said last week the new cap would mark the highest average bill since July 2023. The increased October cap, which will remain in place for three months, will come into force as households start to increase their energy usage further by using their heating more regularly, adding to bills.
Cornwall said the increase in October will be less than otherwise expected because of the proposed removal of VAT from household electricity bills. This policy would knock about £45 off the annual Ofgem price cap from October, Prime Minister Andy Burnham said after announcing the measure.
However, the experts said the recent swing in global energy prices has more than offset the downward impact of the VAT policy.
Debt warnings from Energy UK
Trade association Energy UK has warned that customers could owe around £7 billion in unpaid energy bills by the end of the year. The latest data shows that more than three million customers are now in debt or arrears and the average amount owed is about £1,800, according to the group.
Energy UK’s chief executive Dhara Vyas said more targeted support is still needed to help households facing further costs. She said: “Too many households continue to feel the strain of high energy bills. Instead of relying on stop-gap, ad hoc or emergency measures, we need a better, targeted and more permanent way to give people confidence that they’ll get help when they most need it.
“The current arrangements fail to provide the help needed and work out more costly. Household energy prices are set to increase further for British households.”
