The maximum amount millions of UK customers pay for their energy bills will rise by nearly 10 per cent to pre-pandemic levels from April, piling pressure on household finances as coronavirus continues to ravage the economy.
UK energy regulator Ofgem said on Friday changes in wholesale energy prices would push the price cap £96 higher for 11m default tariff customers, and by £87 for 4m prepayment meter customers. The maximum cap for both categories will increase to £1,138 and £1,156, respectively.
Wholesale prices plummeted last year as a result of the pandemic, pushing the price cap lower by £84, but they have since recovered, buoyed by rising demand. UK wholesale gas and electricity prices have risen in recent months partly due to tightness in global liquefied natural gas supplies.
Of the increase, £23 will go towards allowing suppliers to cover debts incurred by customers unable to pay their energy bills because of the pandemic. The regulator had proposed a £21 increase for this in November.
Jonathan Brearley, chief executive of Ofgem, said increases were “never welcome”, especially as many were struggling to deal with the economic fallout of the pandemic. He insisted the changes had been carefully scrutinised and urged customers to shop around to ensure they could get the best deal possible.
On Friday, observers criticised the move. Switchcraft, a service which compares energy prices and helps customers switch plans, said it made “no sense” to increase prices when 2.1m families were already behind on their bills and “people who’ve struggled but still kept up to date are effectively being asked to pay for those who can’t”.
“The biggest scandal in the energy market is still the way the most vulnerable customers pay the most,” it said. “It should be illegal for prepayment customers to be charged more than people with credit meters, especially because by definition they can’t be in debt.”
Citizens Advice, a charity, also said the increase would be “a heavy blow to a lot of households”.
“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,” it said, referring to the UK’s main welfare payment. “With a tough jobs market and essential bills rising, now is not the time for the government to cut this vital lifeline”.
Citizens Advice research released in December showed 7m households were concerned about their bills.
The price cap is set twice a year by the regulator. Ofgem said on Friday suppliers were required to provide emergency credit to customers struggling to top up their prepayment meters and allow for affordable repayment plans for those unable to settle their bills.
It said suppliers should also not disconnect customers and noted that some had helped customers who were shielding to top up.