Spike in energy prices expected as Ofgem brings forward price cap announcement
2 February 2022, 10:24
Bills might rise by around 50% from April, but the Government is reportedly eyeing an intervention to help keep costs down.
Energy regulator Ofgem will on Thursday reveal what is expected to be a crippling rise in energy bills for millions of households.
The regulator said it is moving forward the announcement of the new cap on bills from next Monday.
The new level will come into force in April, and the latest predictions from experts at Cornwall Insight are that it will be around £1,900 for an average household.
The cap would be set at that level for six months and could rise further afterwards.
It would be a 49% rise from the current price cap, which was already a record high when it was set at £1,277 in October.
Around 22 million households are currently thought to be on an energy deal which is linked to the price cap.
Many of these will likely be put under major financial distress because of the price spike, which has been caused by a manifold increase in global gas prices.
On Wednesday, the Times reported that ministers are planning to back loans of around £6 billion to energy companies.
The companies would then pass on this money to households, saving them around £200 each in a rebate off their energy bill.
🙋A question we often hear is “what is the price cap?”
While we don't increase or decrease the price of energy, we calculate the level of the government's #EnergyPriceCap that applies to default energy tariffs.
This may affect you. See how it works📺 https://t.co/7SyVaj2ogq pic.twitter.com/4wqpvMDGpl
— Ofgem (@ofgem) January 25, 2022
It will help offset at least some of the massive spike in energy costs.
The £6 billion figure, which sources suggested to the Times, is considerably smaller than earlier estimates on how much it might cost to help out households through loans. One figure that had been floated was as high as £20 billion.
Ministers have reportedly approved the plans.
But the new money will be a loan to energy companies and they will be expected to pay it back.
That means while customers are protected from the worst of April’s price rises, they will eventually likely pay the same amount to their energy supplier in the long run.
And this plan is predicated on a fall in the record-high price that energy suppliers are currently paying for the gas and electricity they buy.
As the cost of living rises for households across Great Britain, growing energy prices are disproportionately impacting those on lower incomes 📈
Our latest article explores the impact of rising living costs in more detail ➡️ https://t.co/w8tgL5G1u5 pic.twitter.com/Zij7V23KsJ
— Office for National Statistics (ONS) (@ONS) February 1, 2022
If this price does not significantly drop, bills will need to rise further to recoup the loan money down the line.
Some experts predict that high energy prices are probably here to stay for a couple of years.
If prices fall, the scheme would likely mean these drops in wholesale costs will not be passed on to customers until the Government-backed loans have been repaid.
Ministers are reportedly also expected to announce extra help for poorer households, including an extension of the warm home discount.
Energy price rises are expected to come alongside an overall spike in the cost of living across the UK.
Inflation reached 5.4% in the year to December, recent figures from the Office for National Statistics show.
It was likely to spark a crisis in the cost of living for households across the UK, even without a 50% spike in energy bills.
