In a blow to hard-pressed consumers already struggling with rising inflation, Ofgem has approved a £1,578 increase to the current £1,971 price cap for the average dual fuel tariff – an 80% increase. The announcement comes as households try to budget for a harsh winter. Rising energy bills have fueled rampant inflation, which topped 10 percent last month and is forecast by some economists to rise to 18 percent from January. Ofgem said it would not give forecasts for the next price cap change in January because the market remains “very volatile”, but warned that prices “could get significantly worse by 2023”. The new cap will affect 24 million households – around 85% of the population. That 24 million figure includes around 4.5 million prepaid cash customers, who will pay an extra £59 a year on average. Ofgem’s announcement will put further pressure on the government to urgently introduce further measures to help households this winter. The winner of the Tory leadership contest between Liz Truss and Rishi Sunak is expected to announce a plan shortly after the race concludes on September 5. Jonathan Brearley, chief executive of Ofgem, said: “We know the huge impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I speak to clients regularly and I know today’s news will be very worrying for many.” Brearley said Russia’s invasion of Ukraine and a reduction in natural gas supplies to Europe had driven up wholesale gas prices. He said this left Ofgem with “no choice” but to reflect the cost increases in the price cap. He added: “The government support package is providing help at the moment, but it is clear that the new Prime Minister will need to act further to deal with the impact of the price rises coming in October and next year. “We are working with ministers, consumer groups and industry on a range of options for the incoming prime minister that will require urgent action.” Brearley told BBC Radio 4’s Today show that “the truth is this is beyond the capacity of the regulator and the industry to deal with”. He said the next prime minister must “act urgently and decisively” to address the situation. The Ofgem boss said winter gas prices were fifteen times higher than normal and equivalent to paying £400 to £500 to fill a car with petrol. He advised people struggling with their bills to contact their energy company “preemptively”. A government spokesman said the civil service was “making appropriate preparations to ensure that any additional support or cost of living commitments can be delivered as quickly as possible once the new prime minister is in place”. Consumer champion Martin Lewis has called on the next Prime Minister to unveil a new package as soon as possible. He said: “We have to hope that when we have someone in place, they will come up with a robust, stable, strong policy that we can all get behind that will feed people and keep people warm so we don’t have people dying because of them. price caps this winter. That’s why they’re keeping my fingers crossed.” Isaac Delestre, a research economist at the Institute for Fiscal Studies think tank, pointed out that the new cap means “typical bills for this fiscal year will be 27% higher than expected when the last support package was announced in May.” The £3,549 benchmark will come into effect from 1 October 2022, but Ofgem said it was possible some suppliers would start increasing direct charges before that date to spread the cost. The price cap was introduced in 2019 in an attempt to protect customers from being breached. However, rising wholesale gas costs caused a number of energy suppliers to collapse as they were squeezed by the cap, unable to pass those costs on to customers. Subscribe to the Business Today daily email or follow Guardian Business on Twitter @BusinessDesk With Ofgem reacting to rising wholesale gas prices due to Russia’s invasion of Ukraine, the impact has been to more than double costs for consumers, with the cap rising from £1,277 in October 2021. Earlier this month, the energy regulator confirmed that the cap would be reviewed quarterly rather than every six months. Ofgem said the change would allow it to “adjust much more quickly” to market volatility. The next cap will be introduced in January, when it is feared bills could reach as much as £5,000. Some industry observers have questioned whether the cap is sustainable in the long term.
