Ofgem raise energy price cap but households will not be affected

Ofgem increased its energy price cap for the new year on Thursday.

The average energy bill for a UK household would have increased to over £4,000 a year from January without the government's energy support scheme, as Ofgem increased the price cap.

On Thursday, Ofgem increased its energy price cap for the new year to 67p per unit for electricity and 17p for gas.

The decision will not increase the amount consumers have to pay to use gas and electricity, due to the government's energy price guarantee.

Without the government’s support, bills for the average household would be 67p per unit of electricity instead of 34p, and 17p per unit of gas instead of 10.3p.

The average household bill would have reached around £4,279 per year, instead of the £2,500 that they will now pay due to the government support.

The support will become less generous from April when average households will start paying £3,000.

That figure is for households that use an average amount of energy, so households that use more will pay more.

“There is no immediate action for consumers to take as a result of today’s announcement,” Ofgem said.

The energy price cap has increased from a little over £1,100 just 14 months ago, to over £4,200. Credit: Jacob King/PA

However, the price cap increase will mean the Treasury pay more for the energy that Great Britain uses.

The price the government pays to shield households from higher bills will more than double to around £5 billion a month.

It will push up the cost of running the government’s energy price guarantee from £7.8 billion in the last three months of 2022 to £15.1 billion in the first three months of next year, according to estimates by energy consultancy Auxilione.

The price cap usually regulates how much a household pays for gas and electricity, with the cap based on what it costs energy suppliers to buy gas and electricity on wholesale markets.

The cap was a little over £1,100 just 14 months ago, but gas prices have soared in the last two years.

Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know.

Energy consultancy Cornwall Insight said the price cap is likely to remain high from April, at a little over £3,900 for the average household.

It means the Government could end up paying around £42 billion over the 18 months it has promised to support households with their energy bills, despite the support becoming less generous from April.

Craig Lowrey, Principal consultant at Cornwall Insight, said: “This highlights the nature of the wholesale market risk that the government is taking on by deciding to extend the EPG for longer than the March 2023 date announced by the chancellor in October, with the consequence that the full costs may be potentially higher than currently budgeted for.

“Extending the EPG, even at an elevated level, has resulted in the government being exposed to variables and factors over which they crucially have no control.

"The risk is reduced by changing the level of support but remains acute.

“With Cornwall Insight predicting energy prices will remain above historic levels for many years to come, one thing is clear: more targeted support for the most vulnerable is likely to be needed on an enduring basis if the government wants to protect consumers while also stabilising its finances.”