Energy prices to rise for millions of households from April as regulator hikes price cap

Around 15 million households will be paying more for their energy bill from April, after regulators hiked the price cap.

Customers on their energy supplier’s default tariffs could see their bill rise by a typical £96 a year, while those on prepayment agreements could see an £87 rise.

Ofgem, the regulator that sets the level of the cap, said that it would return to pre-pandemic levels from April 1 - largely as a result of changes to the amount of money suppliers have to buy to source energy.

MoneySavingExpert's Martin Lewis on what customers should do now

The £1,138 annual cap is calculated based on the usage of an average household. Energy suppliers are required to price below that cap but most set their prices a couple of pounds below the cap level.Customers should remember that the cap does not set the maximum people will pay, rather it sets a limit on the rates you pay for each unit of gas and electricity, so if you use more, you'll pay more.

The decision comes on top of an additional £23 rise that energy suppliers have been allowed to charge customers for bad debt.

During the crisis the companies have struggled to get some households to pay their bills, so Ofgem decided they needed to allow the suppliers to spread that cost across the country.

The latest announcement more than wipes out the gains that households made in October, when the price cap dropped by £84 to a record low since the policy was introduced in January 2019.

Ofgem reviews and changes the price cap once every six months.

The proposals could save homeowners £180 a year on energy bills, according to the Welsh Government. Credit: PA Images

Energy officials recognised the impact of the Covid-19 pandemic on people's finances, but insisted the prices rises were "fair".

Jonathan Brearley, chief executive of Ofgem, said: “Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic.

"We have carefully scrutinised these changes to ensure that customers only pay a fair price for their energy.

“The price cap offers a safety net against poor pricing practices, saving customers up to £100 a year, but if they want to avoid the increase in April they should shop around for a cheaper deal.

The price cap for Britain’s 11 million households that are on their supplier’s default tariff could rise by £96 to £1,138 from April 1 Credit: Unsplash

“As the UK still faces challenges around Covid-19, during this exceptional time I expect suppliers to set their prices competitively, treat all customers fairly and ensure that any household in financial distress is given access to the support they need.”

Emma Pinchbeck, the chief executive of Energy UK, a trade body for energy suppliers, echoed Mr Brearley, saying the price cap was set in a way that is meant to be fair for both customers and suppliers.

“Today’s rise reflects that the cost of buying energy – by far the biggest part of the bill – has risen significantly over the last few months. It also includes a greater allowance for debt given the difficulties many customers are facing in paying bills at present,” she said.

But Citizens Advice acting chief executive Alistair Cromwell called the increase “a heavy blow to a lot of households”, and said it would come as benefits are also slashed for many.

“For many people on Universal Credit it will come at the same time as the £20 a week increase to the benefit is set to end,” he said.

“With a tough jobs market and essential bills rising, now is not the time for the Government to cut this vital lifeline”.

The £1,138 annual cap is calculated based on the usage of an average household. Energy suppliers are required to price below that cap. Most set their prices a couple of pounds below the cap level.

James Cleverly, Foreign Office Minister, responded to the news on Friday: "Of course, any increase in bills is a concern but we will continue to make sure that we help support and protect people who are struggling financially because of this pandemic.

Annaliese Dodds, Shadow Chancellor of the Exchequer, said: "I think we would need to understand the detail underlying any energy price rises, but we have to appreciate for many people, particularly those on very low incomes, energy prices are a very big part of their outgoings, particulary the case right now when everybody is forced to be at home."

She continued: "I would be concerned. I think this really does underline the need for the government to make sure that support is there for families.

"They're really hitting families very hard right now financially because they're putting up council tax, they're cutting universal credit in april and they're also freezing the pay of quite a lot of relatively low paid workers in the public sector and if you then see costs going up on top of that, we would be very concerned."