Shock as electricity and gas prices skyrocket

Shock as electricity and gas prices skyrocket

Ofgem recently announced the new price cap that will come into force from April this year - this cap limits how much energy suppliers can charge standard variable tariff customers. We were all expecting a rise. Many of us were expecting a substantial rise. But what was announced last week exceeds even that. The cap has absolutely rocketed – skyrocketed, in fact – by an eye-watering 56%. Wow.

What does this mean for your household budget? Brace yourself. The average household energy bill will rise from £1,277 to a ‘I hope you’re sitting down for this’ £1,971. What’s more, this is just the average for a typical household paying by direct debit. If you happen to use a lot of energy then you’ll pay even more. 

The bad news doesn’t stop there, either. Prices are expected to increase yet again in October when Ofgem revisits the cap. This has left experts and consumers alike tearing their hair out. Chief Executive of the HomeOwners Alliance, Paula Higgins, said the rise was “far worse than anyone expected” and called for an immediate windfall tax on energy companies.

Why is this happening?

Believe it or not, Ofgem have good reasons for raising the cap. After all, the cap is there to protect rather than penalise the Great British public. The problem is that the price of natural gas has more than doubled over the last year and several energy companies have gone bust as a result. Ofgem has increased the cap by so much to prevent more companies from going to the wall and plunging the whole industry into crisis.

What’s more, basic economics are in play here: demand for energy is currently extremely high as the world gets back on its feet after the pandemic. There’s also increasing demand for gas in Asia, where developing economies are using it as they transition away from carbon-based fuels to renewables. This is a perfect storm for the UK in particular because we use gas to generate most of our electricity – even though we have relatively limited gas storage facilities. Basically, these are long-term problems that aren’t going away anytime soon. 

Rishi to the rescue

Because it was inevitable that increases in wholesale prices would eventually be passed on to the consumer, Chancellor Rishi Sunak was able to do some sums and prepare some much-needed mitigation measures. As a result, households will be granted up to £350 this year via rebates or tax deductions.

How does this breakdown? Households in bands A to D will receive £150 off their council tax in April. There will also be help for those in bands E to H and those with an annual household income of less than £79,000. Meanwhile, the government has reserved £144 million in public finances to support vulnerable people and individuals on low incomes who don’t currently pay council tax.

What can you do?

Unless you can think of a way to solve the world’s energy problems – please send your plans to the Secretary General of the United Nations if you do – there really isn’t much anyone can do other than sit tight. Just be aware that prices are likely to keep rising for the foreseeable future and try to budget accordingly. 

Remember that scheduled price rises will kick in on 1 April, so at least your bills won’t be going up for a few weeks, and you won’t be affected at all if you’re on a fixed price tariff. Experts are also advising against scrambling around for a better deal because new fixed price deals have unsurprisingly gone through the roof. So much so, in fact, that you’re better off taking your chances with the cap. 

One thing we would advise, however, is to make your house as green and energy-efficient as you can to minimise the damage. Buy new double or triple-glazed windows; buy some self-adhesive foam strips to exclude drafts; switch to LED light bulbs; install a smart meter; and improve your cavity wall and loft insulation. You’ll save money in the long-run. And you’ll be saving the planet at the same time. 

Lastly, if you’re struggling to pay your bill due to the increased cost living, you can find more detailed advice and support here. 

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