Energy bills to soar by £693 from Aprilon February 3, 2022 at 6:18 pm

Millions of households will typically pay an extra £693 a year on their energy bills from April, putting a further squeeze on people already facing higher prices and rising taxes.

Customers on prepayment meters will see an even bigger increase of £708 a year.

With average bills set to rise to nearly £2,000, the cost of energy has become a pressing political issue.

Chancellor Rishi Sunak has outlined plans to soften the blow via council tax rebates and help with bills.

The majority of families will receive a total of £350 to help them adjust to higher prices, Mr Sunak said. However, only £150 will arrive by the time energy bills rise in April.

The other £200 will be taken off energy bills from October, but households will pay that back in instalments from 2023.

Higher energy bills are set to play a key role in what the Resolution Foundation think-tank has described as a “cost of living catastrophe” facing people across the UK this year.

Taxes are rising from April eating into workers’ take-home pay, and although wages are rising, they are not growing fast enough to make up for prices that are rising at their fastest pace for 30 years.

Post-tax incomes are now forecast to fall 2% this year, after taking into account the rising cost of living. This represents the biggest fall in take-home pay since records began in 1990.

On Thursday the Bank of England increased interest rates from 0.25% to 0.5% to try to dampen the pace of price rises over the longer term but the Bank said inflation could still reach 7.25% in April.

The rising cost of energy is a large contributor to stubbornly rising inflation.

But with wholesale gas prices sharply higher over the last few months, the regulator Ofgem was obliged to announce a rise in the cap that limits what companies can charge consumers in England, Scotland and Wales.

The higher cap means a typical household will pay £1,971 a year from April, 54% more than they pay now, with a further rise expected in October.

Jonathan Brearley, chief executive of Ofgem, said: “We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and we will ensure energy companies support their customers in any way they can.”

Typical of those affected is 24-year-old Michael Ball, from Kirkcaldy.

He pays for his electricity via a pre-payment meter. He has already taken certain steps to reduce his energy bills, like washing his clothes at his mum and dad’s house nearby.

“I do worry about money a lot. It’s a big burden and this news is something that makes me feel anxious,” he said.

He said he might have to move back in with his parents if his energy bills continued to rise.

“If I lose my independence, my own space, I worry about how it might affect my finances and mental health.”

Tell us how you have been affected by the issues raised in this story.

A Treasury spokesman said the £200 rebate would have an upfront cost of £5.6bn while the council tax discount would cost the government £3.6bn in 2022-23.

Labour’s shadow chancellor Rachel Reeves criticised Mr Sunak for not scrapping VAT on energy bills.

She said that despite the chancellor’s pledges the “uncomfortable truth” was that families in Britain would still be paying hundreds of pounds more for energy after April.

She described the plan as a “buy now pay later scheme that loads up costs for tomorrow”.

The cap, which is announced every six months, sets the prices that suppliers can charge for each unit of energy as well as the standing charge. This is then translated into the expected annual bill for a household that uses the typical amount of gas and electricity.

That does not mean there is a limit to how much people can pay. The more gas and electricity that is used, the higher the bill.

Anyone who is on a standard variable tariff, whose fixed deal has come to an end (or is about to), and those moved because their old supplier went bust will be affected by the new higher cap.

Analysts suggest the next change in the cap, scheduled for October, could add hundreds of pounds more onto a typical bill this coming winter.

There is a separate cap for 4.5 million people on prepayment meters, for whom there will be a rise from £1,309 a year to £2,017 in April for a typical household bill.

Energy firms are struggling under the weight of surging wholesale gas prices. The new cap will allow them to pass some of that cost onto customers.

Ofgem’s announcement was brought forward as part of a coordinated approach of announcements about the cost of living.