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Millions to see energy bills rise as price cap goes up by £139

Emma Lunn
Written By:
Emma Lunn

Ofgem has announced that the energy price cap will increase from £1,138 to £1,277 a year from 1 October 2021.

The regulator said the increase is driven by a rise of more than 50% in energy costs over the past six months with gas prices hitting a record high as the world emerges from lockdown.

The energy cap is the maximum price suppliers can charge customers on a standard or default tariff each year. Standard tariffs are variable, which means energy companies can increase (or decrease) the rate they charge you at any time. The energy price cap sets a limit for the amount a supplier can charge the average household with typical energy use.

There is a separate price cap for households with a prepayment meter. This will rise by £153 from £1,156 to £1,309 from 1 October.

Surging prices

The price cap offers a safety net for customers who haven’t switched suppliers or tariffs by making sure that suppliers only pass on legitimate costs. Those on default tariffs have saved an estimated £75 to £100 a year as a result of the cap’s introduction in 2019.

Ofgem said that surging global fossil fuel prices are driving up inflation for consumers, making fixed rate energy tariffs not covered by the price cap, as well as petrol and diesel, more expensive.

Ofgem adjusts the price cap twice a year based on the latest estimated costs of supplying energy. In April, the energy price cap was increased by £96 to pre-pandemic levels of £1,138 for default tariff customers.

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.”

Help from suppliers

Any customer in vulnerable circumstances or worried about paying their energy bill should contact their supplier to access the support available.

Customers may be eligible for extra help such as affordable debt repayment plans or payment breaks, emergency credit for prepayment meters, and a £140 bill rebate under the Warm Home Discount.

Last week suppliers also signed up to an industry commitment to reach out to those who most need help this winter.

Switch tariffs to save money

Alex Hasty, energy expert at Compare the Market, said: “Affected households have until October 1 to take action before the new price cap level comes into effect. Despite energy deals being at the highest level in nearly two-and-a-half years, a significant amount of money can still be saved by switching to a new tariff.

“At the current level, households can save as much as £141 on average by switching to one of the cheapest deals on the market. With costs rising in all aspects of the economy, now could not be a better time to lock in a competitive deal.”

Gareth Kloet, energy spokesperson for GoCompare Energy, said: “These price increases were inevitable – as well as the wholesale cost of gas increasing by nearly 300% in the 12 months between April 20 and April 21, the UK also doesn’t have as much gas stores as it has had in previous years.

“And if you add into the mix that domestic debt is increasing as a knock-on effect of the pandemic, energy companies are having to raise their prices and prepare for a hard winter. The issue with this latest increase is that those who are already struggling to make ends meet are going to find themselves paying even more for energy, so the debt issues will just be exacerbated.

“Many customers might still be stuck on a variable tariff not knowing that a quick shop around could save them up to £302 a year on their energy bills. We are expecting to see providers increase their prices in line with the change in the price cap in the coming weeks, so now is the time to shop around and switch.”