Cost Of UK Winter Triples As Energy Price Cap Leaps

cost-of-uk-winter-triples-as-energy-price-cap-leaps

© Photographer: Leon Neal/Getty Imenergy price cap

Ofgem’s price cap applies to about 24 million customers on variable tariffs.

UK households will pay almost triple the price to heat their homes this winter compared with a year ago, a jarring increase for millions of people already struggling to afford everyday essentials.

Industry regulator Ofgem raised its cap on domestic energy bills to a record £3,549 ($4,189) beginning Oct. 1. That amount is expected to go even higher in January as the UK competes with other nations for limited gas supplies.

“An increase of this much cannot be budgeted for by households with no wiggle room,” said Peter Smith, director of policy and advocacy for the National Energy Action charity. “Come October, low-income households will simply not turn on their heating.”

The higher cap, which was in line with analyst estimates, escalates the economic pressures on Britons paying increasingly more for everything from food to furniture. UK inflation hit a 40-year high last month, and Citigroup Inc. said it could surge past 18% in January.

The government announced a £15 billion package of support in May, including £400 credits to all households and more for the poorest, but calls for further help remain unanswered during the Conservative Party’s ongoing leadership election.

“I know the energy price cap announcement this morning will cause stress and anxiety for many people,” Chancellor of the Exchequer Nadhim Zahawi said. “While Putin is driving up energy prices in revenge for our support of Ukraine’s brave struggle for freedom, I am working flat out to develop options for further support.”

Some energy suppliers are calling for a £100 billion fund to help stabilize prices and a rapid effort to insulate more homes, but a government spokesperson has said no major policy decisions will be taken until a new prime minister is installed Sept. 5.

“It’s going to be horrendous,” said Bill Bullen, chief executive officer of Utilita Energy Ltd., which supplies 810,000 homes in the UK. “We are going to see a big increase in people struggling to pay for their energy bills.”

The new cap — a 178% increase on last winter’s level and 80% up from April — regulates how much suppliers can charge households per unit of energy and applies to about 24 million customers on variable tariffs. Annual bills for a normal household could reach £5,439 in January after the next adjustment, according to consultants Auxilione.

“It’s clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year,” Jonathan Brearley, chief executive officer of Ofgem, said in a statement. “The response will need to match the scale of the crisis we have before us.”

Last winter’s cap was £1,277, but that was before Europe became hostage to the worst energy supply crunch in decades following Russia’s invasion of Ukraine. The continent is dependent on gas from Russia, and Moscow is curbing deliveries in apparent retaliation for European Union sanctions.

Wholesale energy prices are the largest component of the cap, and they’ve soared to a level more than 10 times higher than their seasonal average for the past five years.

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