Millions braced for huge rise in energy priceson February 3, 2022 at 12:09 am

Millions of householders will be told within hours about the extent of a huge increase in energy bills – a key factor in the rising cost of living.

Regulator Ofgem’s new price cap for England, Wales and Scotland is likely to add hundreds of pounds onto the annual bill for 22 million homes.

The new cap, to be announced at 11:00 GMT, will take effect in April.

Ministers are reported to have plans to provide loans for energy firms to help them cut money from customers’ bills.

Analysts Cornwall Insight expect a typical household to face an annual increase of more than £600 on their energy bill, with a further increase of as much as £400 to come in the winter after the next cap is set in six months’ time.

Among those braced for the squeeze on their finances is 24-year-old Michael Ball, from Kirkcaldy.

His biggest worry is that a significant rise could mean he would no longer be able to afford the rent on his one-bedroom flat, and would have to move back in with his parents.

“Anything over a 30% rise in April would make me leave this flat. I’m already spending more than my rent on energy,” he said.

He said he was “very anxious” about the rise, and expected it to be a “big challenge”.

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.

At present, that is £1,277, but analysts are predicting a 50% rise from April.

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.

There is a separate cap for 4.5 million people on prepayment meters. It means a household using a typical amount of gas and electricity pays £1,309 a year.

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.

Joe Malinowski, founder of energy price comparison website The Energy Shop, said: “The energy price cap has already bankrupted over half of all energy suppliers in the market. Now it is set to bankrupt the consumer.

“Come 1 April, energy households up and down the country are set to get battered by colossal increases in energy bills. For many, if not most, it will be simply unaffordable.”

However, ministers are expected to announce a package of measures to reduce the immediate impact on households.

The plans are expected to include the Treasury’s “rebate and clawback” scheme, which would involve providing around £5-6bn in loans to energy firms to enable them to lower bills from April – possibly by about £200.

But it has raised concerns among providers because the money would still have to be paid back eventually by billpayers.

The cost of living is forecast to rise further this year, and the Bank of England will also announce on Thursday whether it will increase interest rates to combat rising prices.

There are also planned tax rises in April, with Prime Minister Boris Johnson under intense pressure to scrap an increase in National Insurance. But he, and Chancellor Rishi Sunak, said at the weekend the tax rise would go ahead.