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Energy price cap raised by 54% as Treasury unveils suite of bill protections

The default tariff price cap has been raised to £1,971. Image: Getty.

The default tariff price cap has been raised to £1,971. Image: Getty.

Energy regulator Ofgem has raised the default tariff price cap by more than 50% to £1,971, with chancellor Rishi Sunak unveiling various measures to offset the increase.

The new price cap constitutes an increase of £694 from the current winter cap of £1,277. Ofgem said the rise is in response to record high power prices seen in recent months, which is in turn attributable to a shortage of gas globally.

“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future,” said Jonathan Brearley, chief executive of Ofgem.

It follows industry analysts predicting a nearly 50% rise of the cap in recent months, with Cornwall Insight for example, this week suggesting it would grow to approximately £1,915. This was up from its prediction made in December 2021 of a 46% increase to £1,865. The research company is expecting the Winter 2022-23 cap to increase to more than £2,300 per year.

Surging power prices last year led to 27 energy suppliers collapsing, as well as Bulb going into special administration.

Over the last couple of months, there have been increasing calls for government intervention to protect customers from the impact of the price cap. Research from charity Resolution Foundation suggested that 6.3 million households could face fuel stress due to the cap increase.

Sunak unveils £350 boost for millions of households

Chancellor of the Exchequer Rishi Sunak announced a swathe of new measures in the House of Commons today which he said would “take the sting out” of the impact of the increase in household energy bills, which comes amidst a broader cost of living crisis in the UK.

A rebate on energy bills, valued by the Treasury at £9.1 billion, is to be issued to 28 million households from October. This is to take the shape of an effective loan of £200, taken off energy bills upfront, which is then recouped from future bills. That £200 is to be taken in five instalments of £40, added to bills from 2023.

The government said it expects gas prices to have normalised by 2023, however research from Cornwall Insight this week suggested that energy price volatility will last until at least 2030, and called for a longer term strategy from the government that would allow Britain to cope with changes in energy production and unstable economic, geopolitical, and ecological systems.

Through the Barnett formula, the Northern Ireland Executive will be funded to issue a comparable level of support with around £150 million provided next year.

Secondly, Sunak announced a £150 rebate in council tax for all those in property bands A to D in England. This one-off payment will be made directly by local authorities from April and will not need to be repaid.

This is expected to benefit 80% of households in England. The chancellor argued that providing support through council tax will provide more targeted support for lower-income families than a VAT cut on energy bills, as proposed by others including the opposition Labour party.

For devolved nations, around £565 million will be provided through Barnett funding as a result of the council tax energy rebate in England. Of this, £290 million will go to the Scottish Government, £175 million to the Welsh Government and £100 million to the Northern Ireland Executive.

A discretionary fund of £144 million was also announced by the chancellor, which will be used to support vulnerable people and individuals on low incomes that do not pay council tax or pay council tax for properties in bands E - H.

Unveiling these measures in parliament today, Sunak said: “The Government is stepping in with direct support that will help around 28 million households with their rising energy costs over the next year.

“We stood behind British people and businesses throughout the pandemic and it’s right we continue to do that as our economy recovers in the months ahead.”

The chancellor also confirmed an expansion of eligibility for the Warm Homes Discount, which has been under consultation. This will see three million more vulnerable households become eligible for the scheme, as well as payments increasing by £10 to £150 from October for the next winter period.

Labour brands measures ‘buy now, pay later’

In recent months, a number of pathways to ease the impact of the energy crisis on consumers in Britain have been suggested, including a windfall tax on north sea oil and gas producers and a cut to VAT.

Sunak said he chose to attach funding to council tax instead of VAT to better target those most vulnerable, to ensure funding is provided as quickly as possible and to avoid a short-term fix becoming a permanent subsidy.

This decision was criticised by Labour, who argued it would instead leave many in the north and the midlands who may fall outside of the council tax banding system, fuel poor.

Similarly the Energy Bills Rebate measure has been called into question. Responding to Sunak, Shadow Chancellor Rachel Reeves labelled the measure a “Buy now, pay later scheme” which gambled on the assumption that energy prices will fall.

Labour had called for both a change to VAT and a windfall tax on North Sea oil and gas producers, a call it reiterated earlier today after Shell revealed its profits jumped by 298% in 2021 on the back of high commodity prices.

Writing on Twitter following the announcement, Reeves said: “Labour will keep bills low with a windfall tax on booming oil & gas profits.

“We'd get £600 to the lowest income households - they will only give them £350. The Tories are the cost of living crisis.”

In the longer term, a continued focus on expanding Britain’s domestic energy generation in order to increase security will be key. The chancellor pointed to the six-fold increase in renewable energy capacity on the grid since 2010, which has been supported through schemes such as the Contracts for Difference auctions.

More needs to be done to build out this capacity, along with improve the energy efficiency of the country’s housing stock argued Association for Renewable Energy and Clean Technology (REA).

Responding to the measures unveiled today, Nina Skorupska CBE, CEO of the trade association said the policies will not cover expected energy bill increases on their own.

“That is why the Government must address the scale of the problem by providing catalysts to improve the insulation of homes and to drive up the installation of domestic renewables and clean technology."


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