Price cap rise: Why are energy bills going up?

6 August 2021, 10:46 | Updated: 6 August 2021, 11:27

The energy price cap has risen again
The energy price cap has risen again. Picture: Alamy

By Will Taylor

Millions of households face a hike in their energy bills after the energy regulator lifted the price cap.

Ofgem confirmed on Friday that the limit on prices will rise again.

Charities have criticised the outcome, saying it could push people in already precarious financial situations with the pandemic even further into trouble.

Here’s the how much the cost has changed and why the cap was lifted.

Read more: Millions of households to see energy bills rise by at least £139

How much more will I pay for my energy bills?

Ofgem had capped bills at £1,138 and it last rose the cap by £96 in April. It reviews the cap once every six months.

It has now raised the cap and 15 million households will end up paying at least an extra £139.

Why has it gone up?

Ofgem said that wholesale energy prices have gone up.

It is also thought that prices had risen because of missed consumer payments amid the coronavirus pandemic.

Jonathan Brearley, chief executive of Ofgem, said: "Higher energy bills are never welcome and the timing and size of this increase will be particularly difficult for many families still struggling with the impact of the pandemic.

"The price cap means suppliers only pass on legitimate costs of supplying energy and cannot charge more than the level of the price cap, although they can charge less."

Read more: 'Are you listening to yourself?': Eddie Mair grills Business Minister Paul Scully

Read more: Brewery owner brands 'pingdemic' an 'existential threat' to businesses

When will the changes take effect?

The increase will come into force from October 1.

Charities worry about the impact of rising energy bills
Charities worry about the impact of rising energy bills. Picture: Alamy

Can I try and get a cheaper tariff?

The recommendation is to shop around for a better deal if you feel your provider had put prices up too steeply.

However, the price cap has often seen many companies set their bills just below the limit.

Mr Brearley said: "If you're struggling to pay your bill you can get in touch with your supplier to access the help that's available and if possible, shop around for a better deal.

"I appreciate this is extremely difficult news for many people, my commitment to customers is that Ofgem will continue to do everything we can to ensure they are protected this winter, especially those in vulnerable circumstances."

Alex Hasty, energy expert at Compare the Market, said: "A further increase to the energy price cap will see energy costs shoot up for millions of households.

"While suppliers have been increasing prices across the board, it still remains significantly cheaper to switch to a competitive tariff.

"It should act as a useful reminder that the price cap is not there to serve as protection from hefty price increases and households should be alert to price changes when they take effect.

"There is plenty of time for those households that might be impacted to take action and save themselves from paying considerably more than they need to for their energy."

Why are charities worried?

There are concerns about people having to pay much more for their bills after the pandemic wreaked havoc on people’s finances.

As well as a significant rise in general inflation - driving up spending on other essentials such as food - millions of people will see a reduction in their incomes, as furlough winds down and the uplifts to Universal Credit are likely to be withdrawn. Many people will also still be using more energy working from home.

Peter Smith, director of policy and advocacy at fuel poverty charity National Energy Action, said: “This toxic combination of high prices, reduced incomes and leaky, inefficient housing which uses far more energy than necessary, will lead to increases in utility debt and badly damage physical and mental health."

Tom Marsland, policy manager for consumer affairs at disability charity Scope, said: "Disabled people already face higher energy costs and usage, with 800,000 households a year facing annual energy bills of £2,500. The increase in the price cap will fill many with dread at the thought of their energy bills spiralling this coming winter.

"Introducing voluntary commitments, that energy suppliers should already be offering, or advising customers to change energy supplier is welcome but not enough.

"Suppliers should be proactively reaching out to their disabled customers now ahead of winter to make them aware of the support available and Ofgem must look to introduce further protections for disabled people."