Price cap: UK households face £700 a month energy bills from January

·Finance Reporter, Yahoo Finance UK
·13 min read
energy bills File photo dated 08/04/19 of a handheld smart meter in a London home. Householders are experiencing plummeting standards of customer service from their energy suppliers including rising call waiting times as their bills soar, according to Citizens Advice figures. Issue date: Friday April 8, 2022.
UK households face a sharp rise in their energy bills as the price cap hits £3,549. Photo: PA

Monthly energy bills could be on average three times higher this winter than last year, at around £500 a month, and over £700 in January alone, according to think tank Resolution Foundation.

The analysis, which incorporates both Ofgem’s confirmed price cap of £3,549 for October and Cornwall Insight’s latest price cap forecast for January which stands at £5,386.71, shows that energy bills for 2022-23 are set to be around £2,277 higher than last year at £3,749.

“Extra money that families simply can’t afford,” it warned.

The UK’s 4 million customers on pre-payment meters, who tend to have lower incomes than those on direct debits, face the biggest challenge. Typical energy bills in January alone could hit £714 — over half of their monthly disposable income.

Read more: UK energy price cap to rise 80% to £3,549 this October

Torsten Bell, chief executive of the Resolution Foundation, said UK households are on course for a winter catastrophe unless significant help is provided.

“A price cap of £3,549 from October, with another rise likely in January, means that Britain is on course for a winter catastrophe unless significant help is provided.

“Winter energy bills are set to average around £500 a month, while pre-payment customers will need to find over £700, more than half their disposable income, to keep the heating on in January alone. These costs pose a serious threat to families’ physical and financial health.”

The think tank warned that without help, UK households will be forced to turn off their heating, or fall behind on bills and run up arrears.

“Big bill reductions combined with solidarity taxes, or throwing the kitchen sink at a brand-new social tariff scheme, should be the focus for whoever becomes the next prime minister,” Bell said.

The energy regulator has confirmed what had long been predicted and feared — the energy price cap is going up 80% to £3,549 in October.

Poorest homes to spend up to 47% of budget on energy

Some of Britain’s poorest families will see as much as 47% of their entire household budget swallowed up by energy costs this autumn, according to calculations by investment platform Interactive Investor.

Alice Guy, a personal finance expert at the platform, told The Guardian: “The figures are truly terrifying. The rising energy price cap will have a disproportionate and devastating effect on poorer families who will spend a huge proportion of their budget on energy this autumn.

Read more: British Gas to donate 10% of profits to struggling customers

"Meanwhile, affluent families are better insulated from the effects of the energy crisis. While still painful, they will spend a much smaller proportion of their household budget on fuel this autumn.”

Analysts are predicting that average energy bills will rocket even further to over £6,600 next April.

Energy consultancy firm Cornwall Insight has released new forecasts following this morning’s announcement from Ofgem. They now believe the price cap will reach £5,386.71 in January next year, when the cap next changes, before soaring to £6,616.37 in April.

Energy bills continue to rise.
Energy bills continue to rise. Chart: Yahoo

“While there is still some time until the January and April caps are set, the energy crisis is showing no sign of abating,” Craig Lowrey of Cornwall Insight, said.

“A key focus for the next prime minister and for Ofgem must be protecting consumers, and the wider economy from the impact of this rise. There are several avenues that can be explored including a review and expansion of the current support package of at least £400 per household,” he added.

Money saving expert Martin Lewis has said "lives will be lost" because of the energy price cap rise.

The consumer champion said the situation is a “genuine social and financial catastrophe that is putting lives at risk”, as he predicted a further 51% rise in January.

Lewis told BBC Radio 4’s Today Programme: “I’ve been accused of catastrophising over this situation.

“Well, the reason I have catastrophised is this is a catastrophe, plain and simple.

“If we do not get further government intervention on top of what was announced in May, lives will be lost this winter.”

The average household’s yearly bill will go from £1,971 to £3,549 from October.

The 4.5 million pre-payment meter customers, who are often the most vulnerable and already in fuel poverty, will see their average annual bill rise to £3,608.

However, Lewis said many will likely pay much more.

He said: “You could easily be paying £5,000 or £10,000 a year if you have high usage.

“I worry terribly for some of those who have disabled children or disabilities themselves who need lots of electrical equipment to keep their houses warm because of medical conditions.”

Ofgem’s chief executive, Jonathan Brearley, warned of the hardship energy prices will cause this winter.

Read more: Energy bills: How to cope with soaring prices

Lewis said prices for many will be “unaffordable” in January.

He added: “The prediction now in January is up another 51% on top of where we are now and that would take a typical bill and direct debit to £5,386 a year.”

Lewis said a movement to refuse to pay energy bills is “growing”, as he called on the next prime minister to spend billions on tackling the crisis.

He said: “We must hope that once we have somebody in place, they will come up with a robust strong policy that we can all get behind that feeds people and heats people so we don’t have people dying because of these price cuts these winters.”

The money saving expert added: “I suspect if it isn’t in place, then people coming from the Don’t Pay movement are going to become a louder voice in this country.”

Charities urge government to support UK households

Carole Easton, chief executive of the Centre for Aging Better charity, fears there will be a “significant” rise in deaths this winter because people can’t afford to keep warm.

“The threat of dizzying increases in energy bills has been looming for months, with today’s announcement confirming many people’s worst fears.

Millions now face a long, cold and dangerous winter. Already around 10,000 people die a year because their homes are too cold. There is a clear and present danger that this number will rise significantly this winter without drastic measures.

Read more: Shell fined £536k for overcharging retail energy customers

“Immediate financial support is necessary. Three in 10 older households in England with at least one person aged 60 or over are already fuel-stressed before these impending increases. And over 65s are most likely to already be cutting back on gas and electricity. Further rationing will lead to significant negative impacts on their health.”

A disabled man has said he will heat just one room in his home after Ofgem confirmed an 80.06% rise in the energy price cap.

Jason Alcock, 51, from Stoke-on-Trent, who has autism, ADHD and bipolar disorder, said he was “shocked” by the energy price cap rise and feared for people “on the breadline” where he lives.

“It’s crazy. There’s absolutely no way people can afford this kind of price rise. I’m shocked by it,” he told the PA news agency.

“I thought they would have pulled back on it. I thought we wouldn’t have this, what they call ‘zombie government’ with no-one in charge.

“We’re coming up to winter now. When winter starts and people can’t put their heating on… I’ll be heating one room in my house, but people have got children. The area I live in is a pretty low income area and there’s a lot of people on the breadline and they are going to suffer.

“What can you do? I am at the point where I’m trying to buy cheaper stuff but the prices across the board have gone up. I know this is happening, but what can I do?”

Read more: Over a third of UK firms to hike prices amid surging energy costs

Jonathan Brearley, the Ofgem chief executive, has said “there are no easy answers” to the energy crisis.

He told Good Morning Britain: “Genuinely, there are no easy answers, but there are some big decisions that ultimately ministers will need to make.”

He added: “To be honest I never imagined when I took this role that I would have to make an announcement that we made today.”

When asked about senior people in the energy industry receiving bonuses, he urged them to “be thoughtful” about their pay and remuneration.

He said: “For example, the senior Ofgem team has given away any bonuses to charity because we recognise the situation that we are in right now.”

Analysts at ING have calculated that UK households may collectively need up to £65bn extra in government support to offset the forthcoming rise in energy bills this winter.

The StepChange debt charity said a third of its new clients were in energy arrears in July, before the latest rise, and this could rise to more than half after the next price cap increase in January.

Chief executive Phil Andrew said: “Household budgets are being pushed to the absolute limit and it’s inevitable this will lead to more people experiencing debt.

“The demand for debt advice is rising across the sector as the cost of living crisis bites.

Read more: TUC calls for £15 minimum wage amid cost of living crisis

“Many of our existing clients are also having to amend their arrangements as they can no longer afford their previous payments.”

Katie Schmuecker, principal policy adviser for the Joseph Rowntree Foundation, said households are “crying out for certainty and security”.

She said: “It is simply unthinkable that the price rises announced today can go ahead without further government intervention on a significant scale.

“To force the burden of rising wholesale energy prices onto households will plunge many into destitution.

“Millions more will face the threat of bills they simply cannot pay, homes they cannot heat and stomachs they cannot fill.

“It is the job of government to decide how the burden is fairly shared between families, businesses and the public finances.

Bank of England to raise rates to 4.25%

Think tank NIESR now expects the Bank of England to raise rates to 4.25% by May as energy costs will make inflation surge to new record highs.

Stephen Millard, NIESR deputy director, said: “Today Ofgem announced a rise in the energy price cap of 80%. This will raise the cost of a standard variable dual-fuel tariff from £1,971 to £3549 for the average household.

“In turn, this will add 2.7 percentage points to the consumer prices index inflation rate in October, taking our forecast for CPI inflation in October from 11.3% to 12.5%.

Read more: Energy bills direct debit: What Ofgem announcement means for consumers

“We expect the overall contribution of gas and electricity prices to CPI inflation in October to be 5.9 percentage points.

“But this increase does not signal the end of energy price rises. We expect the energy price cap to rise further in January (by 31% to £4,649).

“And that would imply a forecast for CPI inflation of 14.2% in January. This compares with the recent prediction of Citi that CPI inflation will peak at over 18% in January.

“One implication of this rise in expected inflation is that the Monetary Policy Committee will now need to tighten monetary policy faster and by more than we had previously thought. We now expect the policy rate to rise to 4.25% by May of next year.”

The Trades Union Congress (TUC) has said energy bills will rise 35 times faster than wages and 57 times faster than benefits in the last three months of this year, after the energy price cap was hiked by 80%.

It added that while average nominal wages will rise by £1,470 in the year to October, energy bills will soar by £2,270 in the same period, leaving workers £800 worse off.

“Nobody should have to worry about heating their homes this winter,” said TUC general Secretary Frances O’Grady.

“But millions are facing bankrupting bills in the months ahead.

Read more: Some 1.9 million UK households defaulted on bills in the last month

“Today’s energy price rise will be a hammer blow to family budgets and tip many households into fuel poverty.

“Ministers must immediately cancel this catastrophic increase. This is the worst possible time for the government to go missing in action.

“And to make sure energy remains affordable to everyone, they should bring the energy retail companies into public ownership.”

After the energy price cap was hiked 80% to £3,549 for the average household, ScottishPower chief executive Keith Anderson, said: “The size and scale of this issue is truly catastrophic for UK households and that’s why only a big solution can tackle it once and for all to shelter people from the worst this winter.

“We have offered the government a plan, backed by the industry, that can be delivered this year, tailored in line with their priorities and will support the UK economy — with the cap set at £3,549, what billpayers need now is to hear what additional help is coming.”

The number of UK households in fuel poverty will have doubled in a year when the October price cap rise takes effect, according to the charity National Energy Action (NEA)

It calculates that 8.9 million UK households will be in fuel poverty from October — up from 4.5 million last October.

Watch: Why are gas prices rising?