Energy bills likely to rise by £800 in October, says Ofgem chief

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Calls for the chancellor to act immediately on the cost of living crisis grew louder after the head of the energy regulator told MPs it is on course to raise the cap on household energy bills to about £2,800 in October.

The increase in the cap would push up the average annual bill by more than £800, after the regulator Ofgem increased it by £693 in April to £1,971.

Ofgem’s chief executive, Jonathan Brearley, told parliament’s business, energy and industrial strategy committee (BEIS) the figure was provisional but was based on the most accurate current estimate.

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He said he would be writing to the chancellor, Rishi Sunak, on Tuesday afternoon to confirm the soaring cost of wholesale gas, which has risen by as much as 10 times the normal price in recent months, and a rise in electricity costs, were to blame for a 40% increase in the average bill.

Brearley said: “The price changes we have seen in the gas market are genuinely a once-in-a-generation event not seen since the oil crisis of the 1970s.”

Energy prices pushed the consumer prices index (CPI) to 9% in April, fuelling criticism that the government has failed to protect millions of low-income families from making the choice of feeding themselves or heating their homes.

The Resolution Foundation thinktank said raising the energy price cap to about £2,800 in October could mean 9.6 million families across England fall into fuel stress this winter, defined as spending at least a 10th of their total budgets on energy bills alone.

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Frances O’Grady, general secretary of the TUC, said the chancellor must act now with a package of measures in an emergency budget.

“Millions of families are already at breaking point. But now they face even more bill hikes, while ministers do nothing to make sure wages and universal credit keep pace,” she said.

O’Grady called for an increase to universal credit and a “major programme of energy grants to cut bills” funded by a windfall tax.

Adam Scorer, chief executive of National Energy Action, said Brearley’s warning “will strike terror into the hearts of millions of people, already unable to heat and power their homes. It will plunge households into deep, deep crisis. The financial, social and health impacts are unthinkable.”

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Kwasi Kwarteng, the business and energy secretary, said he expected households would receive further help.

Kwarteng told the BEIS committee: “These interventions may not be able to solve all the problems consumers face but they will go some way to dealing with this cost of living issue.”

There is speculation in Westminster that a package of measures will be announced this week to coincide with the publication of the Sue Gray report on parties in Downing Street.

Officials in No 10 expect measures to include further support for low-income households, in part paid for by a tax on oil and gas producers and possibly electricity generators.

Kwarteng said he disapproved of a windfall tax on energy companies. “I don’t think [a windfall tax] supports investment and is necessarily the right thing to do. But the chancellor makes the decisions. His instinct is against a windfall tax, but if he thinks these extraordinary times require extraordinary measures, that will be up to him … I think his judgment has been very good during the pandemic.”

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Research from the energy consultants Cornwall Insight shows consumers wanting to fix their energy costs have already suffered an “unprecedented increase in their bills” to £3,685 a year, £1,714 more than the current default tariff cap.

It found that deals for new direct debit customers showed that despite April’s £693 cap increase, suppliers’ standard variable tariffs continued to be the cheapest tariffs available to customers.

Just a year ago, in April 2021, the cheapest 10 fixed tariffs averaged £937 a year, it added.

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Kwarteng defended the government’s role in the development of a gas market that one MP described as unstable and which has seen about 40 retail suppliers go bust. Bulb was the largest to go into administration, at a cost to the taxpayer of £2.2bn, he confirmed at the meeting.

He also defended keeping Bulb’s chief executive, Hayden Wood, in place and maintaining his £250,000 salary while the government seeks a buyer. He said the government would have had to find another chief executive who would have asked to be paid more.

A consultation on Ofgem proposals to update the price cap every quarter rather than every six months closes on 14 June, with planned changes implemented from October.

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