Energy bills will rise more than expected for millions of British households this autumn as a result of the mounting cost of government subsidies.
The energy regulator for Great Britain, Ofgem, will raise the government’s cap on bills by 2% from October, or the equivalent of just over £35 a year, to £1,755 for a typical annual dual-fuel bill.
The higher than expected increase comes despite a 2% fall in the wholesale price in the energy markets over the last three months.
Prices for households will go up just as the colder weather sets in because money is needed to cover the rising cost of the government’s energy policies.
About £15 of the £35 increase will fund an expansion of the warm home discount scheme to provide an extra 2.7 million households with a £150 reduction in their bills.
Another £17 will go to balancing the energy system as Britain relies more heavily on renewable energy sources. The money will fund payments made to shut wind farms when there is more renewable energy generation than can be used, or to fire up gas plants when renewables are in short supply.
For about 9 million households who pay for their energy through variable tariffs, the impact on their bills will be immediate when the cap changes. Households could face even higher bills if they use more than the typical amount of energy.
This is because the cap, which is recalculated every three months, limits the rate energy suppliers can charge customers for each unit of gas and electricity, not the total bill.
The price of electricity will rise from 25.73p a kilowatt-hour over the summer to 26.35p a kWh, while the price of gas will fall to from 6.33p to 6.29p a kWh to reflect the modest drop in wholesale market prices.
Standing charges will increase too, meaning higher costs even for households who try to cut their bills by using less energy. The electricity standing charge will rise from 51.37p a day to 53.68p, and the standing charge for gas from 29.82p to 34.03p a day.
Responding to the price cap announcement, Labour blamed the previous government’s policies towards renewable energy and attacked plans by the Reform leader, Nigel Farage, to turn away from greener energy sources.
“Energy bills soared under the Conservatives because they tied our country to the fossil fuel rollercoaster, and working people are still paying the price,” a spokesperson said.
“From banning onshore wind to failing to deliver new nuclear, their reckless decisions left Britain exposed to wholesale gas prices that are still 75% higher than before Putin’s invasion of Ukraine.
“That’s why Nigel Farage’s unpatriotic war on clean energy would be a total disaster for families, businesses and our economy. His destructive plans would push bills higher, kill nearly a million jobs and scrap billions of pounds of vital investment across the country that will strengthen our energy security.”
The return of rising energy bills means the typical household will pay about £600 a year more than before Russia’s invasion of Ukraine in 2022, which caused gas market prices to soar.
The rise has prompted calls for households to switch from a default tariff to a lower fixed-rate deal to guard against further increases. It is also likely to reignite debate about the affordability of Britain’s energy as households look ahead to winter.
Gillian Cooper, a director at Citizens Advice, said the charity was “bracing for more calls as people struggle to top up their meters and pay the gas bill” this winter.
“The government has made welcome changes to expand the number of people who’ll receive support with their energy bills this winter, but it’s not enough to turn the tide,” she said.
“It’s high time for decisions about the longer term. The government must set out plans for how it will support the households struggling the most over the coming years and also prioritise investing in energy upgrades for millions of homes to reduce costs and keep money in people’s pockets.”
Official figures show that household energy debts reached a record £4.15bn at the end of last winter. The total debt and arrears figure has accelerated in the past two years even as energy bills have stabilised relative to the record increase in 2022.
Cornwall Insight has predicted that the price cap will fall slightly in January. This depends on weather patterns, on whether geopolitics affects market prices, and on whether new policy costs, such as those to support investment in new nuclear-generating capacity, are added to bills.
