Ofgem Raises Energy Bill Cap for 15 Million Households

Energy bills could rise by almost £100 for 15 million households in the UK after a hike in energy price caps by the industry regulator.

The decision, announced on Friday by Ofgem, will mean the price cap for default tariff customers will increase by £96 to £1,138 per year from 1st April 2021.

Customers with pre-paid meters will have their annual price cap raised by £87 to £1,156.

As millions reel from the financial impact of Coronavirus, there are concerns that the rise could place many under even greater pressure.

The pandemic has already placed many households under great financial strain. News of the price cap rising by an average of £96 from April will be a bitter pill to swallow for the 11 million default tariff customers with standard meters, many of whom are already struggling to make ends meet

said USwitch.com head of regulation, Richard Neudegg.

He suggested that the increase was motivated by companies trying to recoup unpaid debts:

The price cap increase is an aftershock of last year's lockdown, partly because many customers have struggled to pay their energy bills, plunging them into debt that suppliers have been unable to recover

he added

According to Ofgem, the move was prompted by a rise in the wholesale cost of energy, which it said had increased to 'pre-pandemic levels'.

Wholesale energy prices plummeted in Spring 2020 when the first wave of Coronavirus caused the global economy to slow down.

Ofgem responded by bringing the price cap in line at its August review, to it's lowest Winter level yet.

However, the latest available data from Ofgem shows that between May and September last year, the wholesale cost of electricity more than doubled.

Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic. We have carefully scrutinized these changes to ensure that customers only pay a fair price for their energy, As the UK still faces challenges around COVID-19, during this exceptional time, I expect suppliers to set their prices competitively, treat all customers fairly and ensure that any household in financial distress is given access to the support they need.

said Ofgem Chief Executive Jonathan Brearley

In December, Citizens Advice reported that 2.1 million homes were behind on their energy bills- an increase of 600,000 in February the same year.

It called on suppliers to extend payment holidays throughout the pandemic along with other support measures and said the increase would be a 'heavy blow', as it coincides with the end of the £20 a week uplift to Universal Credit.

The energy regulator 'urged' customers struggling to pay their bills to contact their suppliers, who it said would be able to claim up to £23 to cover the bad debt for people struggling with the financial impact of COVID-19.

It stressed that suppliers are required to provide emergency credit to customers unable to top up pre-payment meters- due to shielding, for example- and should not disconnect those who cannot afford to pay.

According to Citizens Advice, the average amount owed by customers who haven't come to an agreement with their supplier is between £605-£760.

The price cap was introduced by then-Prime Minister Theresa May as a protection against unfair pricing practices.

It protects customers from companies' default tariffs from arbitrary price increases. However, the most effective way to save money for most customers is to switch suppliers.

According to Ofgem, switching saves an average household £150 per year, compared to just £100 saved through the price cap measures.