Household energy bills in Britain are expected to reach more than £4,420 a year on average next spring, bringing a “new shock” to households already suffering from an energy cost crisis. life
Energy consultancy Cornwall Insight raised its forecast for the UK price cap on Tuesday following an announcement by energy regulator Ofgem of controversial changes to the way the level is calculated.
The latest forecasts for the cap to more than double from its current level are likely to pile fresh pressure on Tory leadership candidates Liz Truss and Rishi Sunak to deliver more support to households this winter.
The opposition Liberal Democrats have called for the next rise in the price cap, due on October 1, not to pass on to consumers, with the difference funded by an increase in tax on windfall profits recently imposed by the government on oil and gas producers. Oil and gas groups, including BP and Shell, have been making windfall profits from high prices.
Cornwall Insight, which is among the most accurate forecasters of UK household energy bills, warned that the price cap could rise from an average of £1,971 a year currently to £3,582 in October, a rise of more than 80 per cent . The cap would rise to £4,266 in January before peaking at £4,427 in April next year, according to estimates.
The energy price cap in Britain dictates a maximum that suppliers can charge per unit of energy and also limits their profit margins. It affects the vast majority of households in the country — about 24 million of an estimated 27.8 million — that are not on fixed-price deals. Ofgem will announce the October price cap level on 26 August.
Cornwall Insight has sharply revised its estimates following methodological changes announced by Ofgem last week which allow energy suppliers to recover all the costs of buying energy for their customers for next winter at the current high wholesale prices . Before the changes, Cornwall Insight had predicted the cap would rise to around £3,600 a year in January.
Ofgem insisted it had to make changes to the price cap to prevent another slew of energy company collapses. Since January 2021, more than 30 energy distributors have been in crisis. The costs of tackling these failures are expected to exceed £4 billion, which will be recovered through a levy on household energy bills.
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Investec was the first to warn last week that Ofgem’s adjustments could force the January price cap beyond £4,200 a year on average, although the regulator at the time insisted the forecast was “far away” from his own “working estimate” of where the price is. the limit could be early 2023.
Ofgem said in response to the Cornwall Insight numbers that “the wholesale market continues to move very quickly, so any forecast for next year is not at all robust”.
“We cannot prevent others from making predictions, but we would ask that extreme caution be applied to any price cap predictions in January or beyond,” the regulator added.
Craig Lowrey, senior consultant at Cornwall Insight, admitted the latest forecasts would come as a “new shock” to households already worried about how they will make ends meet this winter.
He suggested it “may be time” to completely reconsider the energy price cap. “If it’s not controlling consumer prices and it’s hurting suppliers’ business models, we have to ask whether it’s fit for purpose, especially in these times of unprecedented energy market conditions,” he said.