Energy bills to rise even more than expected after third straight price cap hike
The new price cap is set at £1,849 - it had been feared to be rising even further in April
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Ofgem have announced the new energy price cap which starts from April - and which has risen by 6.4 per cent, marking a third straight increase.
While it means many households across the UK will be paying more for their energy bills, it is a slightly lower increase than some had forecast, with up to 7 per cent initially being feared. However, last week Cornwall Insight forecast that the cap could rise by as low as 5 per cent.
It means the new price cap is set at £1,849 from April onwards, an increase of £9.25 per month from the current rate.
Ofgem is the regulator which sets the maximum rate that households can be charged for energy, using the price cap to ensure customers are not excessively paying for gas and electricity.
On 1 January the price cap rose around one per cent to £1,738 a year, with each announcement setting the price for the forthcoming three months. Rates apply to standard or default variable tariffs from suppliers, paid by direct debit. Amounts are slightly different for prepayment and other payment methods.
EDF Energy has predicted that the price cap could rise again in July and October by smaller amounts, between 1 and 3 per cent, before stabilising by January 2026.
The price change reflects the cost of energy production and supply for firms before they provide it to households.
While April will therefore bring a rise in bills, it remains significantly lower than during the cost of living crisis, when the price cap reached more than £4,000 in January 2023. Compared to a year ago in the same period, the price cap this year will be 9 per cent higher.
Ofgem chief executive Jonathan Brearley said: “We know that no price rise is ever welcome, and that the cost of energy remains a huge challenge for many households. But our reliance on international gas markets leads to volatile wholesale prices, and continues to drive up bills, which is why it’s more important than ever that we’re driving forward investment in a cleaner, homegrown system.
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“Energy debts that began during the energy crisis have reached record levels and without intervention will continue to grow. This puts families under huge stress and increases costs for all customers. We’re developing plans that could give households with unmanageable debt the clean slate they need to move forward.
“We welcome the government’s support for these plans, and their plans to expand the warm home discount, which will also offer financial help to nearly three million more households that need it most.”
Ofgem explained that a rising trend in wholesale prices was the primary factor in a lifted cap, accounting for more than three-quarters of the total increase, while a further 22 per cent was a result of a small increase in policy costs and inflationary pressures.
Energy secretary Ed Miliband wrote to Ofgem urging them to sort out soaring costs, highlighting the “rollercoaster” nature of global markets. Under Miliband, the net zero sector is growing at three times the rate of Britain’s wider economy, which can have a significant longer-term impact on the UK’s over-reliance on imported gas.
Meanwhile, Liberal Democrat Leader and former energy secretary Ed Davey called on the government to protect pensioners who have seen the winter fuel payments allowance scrapped by making them exempt from this latest price hike.
Dr Craig Lowrey, principal consultant at Cornwall Insight, noted that higher bills tended to see people suggest that using renewable energies was not having the desired effect, but in fact, the opposite was true. “Households have been hit hard over the past few months, and with bills set to rise for a third consecutive time, the pressure is not letting up.
“It might be tempting to look at rising bills and conclude that the push towards renewables is not working, and we should scale back on the transition. But the reality is higher energy costs only reinforce the need to accelerate our expansion of clean, reliable energy across the UK,” Dr Lowrey said.
“Short-term measures, from social tariffs to one-off payments, will be crucial to ensure that the most vulnerable are protected and that the burden of rising costs does not fall disproportionately on those least able to afford it.”
It is important to note that the price cap relates to the maximum that companies can charge for units of energy, not the limit that you can pay for your bill – if you use more energy, you’ll pay higher bills.
Sam Alvis, associate director for the Institute for Public Policy Research, added: "Households are once again facing higher bills as gas prices rise. The public is clear: they want to end this costly reliance and shift to homegrown, secure, and low-cost renewables. The transition to renewables will mean lower, more stable prices, freeing us from the mood swings of the gas market. But people need to see that the government is on their side now.
"Immediate action on household costs can help sustain public support for the rapid expansion of clean energy. The government should consider rebalancing costs between bills and taxation and review how Ofgem calculates charges.”
Megan Davies from the Stop the Squeeze campaign said: “Today’s energy price cap increase is yet another blow for the millions of households continuing to struggle with the cost of living. Being able to heat your home and turn on the lights shouldn’t be luxuries, but with energy prices still way above their pre-crisis average, that’s exactly what they are for too many people.
“The Government needs to take action to ensure that essentials like energy are affordable now and remain so in the future. In the short term, that means fixing the broken energy market so that everyone’s basic energy needs can always be met, while speeding up the investment in renewables that will give us clean, affordable energy for the long term.”
And Caroline Abrahams CBE, Charity Director at Age UK said: “Today’s announcement is terrible news for older people and yet another blow for those on low or modest fixed incomes who lost their Winter Fuel Payment when they really couldn't afford it. The fact that all the experts are saying the cost of energy is likely to keep on rising will strike real fear in the hearts of many pensioners, who are still grappling with the challenge of getting through this winter with their health and finances intact."
“Older people must not be subjected to similar misery again next winter. As energy prices are rising with no end in sight, they need to be better protected. The Government must act to ensure that every pensioner has the confidence and ability to turn their heating on next winter and stay adequately warm.”
Following the price cap announcement, David Buttress, chief executive of Ovo Energy, has called for a specific tariff to help vulnerable customers, saying companies, the regulator and the government “must work together to introduce a social tariff to shield the most vulnerable from high prices.”
Average temperatures in the UK for April tend to be from lows of 2 or 5C, up to average highs of 13 or 14.
You should always consider looking to see if you can switch your energy supplier or get a better deal from your present one. Ofgem offer a list of comparison websites and details of what you need to change supplier.
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