Ofgem has announced that households all over the UK will see a steep price hike in energy bills from October, with pre-payment customers and those on default direct debit tariffs set to be affected.
The energy watchdog said on Friday (August 6) that energy customers on default tariffs paying by direct debit will see the sharpest jump in prices since the energy price cap was introduced in 2019.
Here’s what you need to know about the rise in energy prices and how much your energy bills will increase by in October.
What is the Ofgem energy price cap?
The price cap on energy prices was established by the energy regulator in 2019 to ease the financial burden of climbing energy costs on UK households.
It affects those on standard tariffs rather than households who commit to fixed tariff plans, with suppliers of fixed rate energy plans not subject to the price cap.
Standard tariffs, also known as default tariffs, have variable prices – meaning that your energy company can vary the amount they charge for their energy.
But per the terms of Ofgem’s price cap, energy bill items like standing charges and prices for gas and electricity units cannot be unduly hiked in price by energy suppliers.
The price cap is reviewed once every six months, with the cap level set for winter and summer energy prices based on the energy market costs causing your bill to rise or fall.
Energy bill costs can also vary based on usage, where you live, whether your bill by standard credit, direct debit or prepayment as well as your type of energy meter.
Why are energy prices rising?
The rise in energy prices has been driven by a rise of more than 50% in energy costs over the last six months, with gas prices hitting a record high as inflation jumped amid the easing of pandemic restrictions.
Ofgem chief executive Jonathan Brearley 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.
"If you're struggling to pay your bill you can get in touch with your supplier to access the help that's available and, if possible, shop around for a better deal.
"I appreciate this is extremely difficult news for many people. My commitment to customers is that Ofgem will continue to do everything we can to ensure they are protected this winter, especially those in vulnerable circumstances."
Industry-watchers had expected Ofgem to hike the energy price cap by around £150 from its current level of £1,138 for an average household's gas and electricity bills.
The new rate will come into force from October 1 for customers on their supplier's default tariffs.
How much will my energy bill increase by?
15 million households are set to see an increase of at least £139 as energy prices reach a record high in October 2021.
Ofgem has said that those worst affected by the energy cap and price rise will be customers paying for default energy tariffs by direct debit.
Average bills for these customers could soar to £1,277.
Pre-payment customers will see costs rise by £153, from £1,156 to £,1309.
Welfare experts and commentators have warned that the rise in energy prices could be devastating for the UK households as the £20 uplift in Universal Credit and Covid-19 financial support schemes like furlough are set to be phased out this autumn.
James Plunkett of Citizens Advice said: "This price hike could lead to a perfect storm for families this autumn, hitting people at the same time as a Universal Credit cut and the end of furlough. It's particularly worrying given families on Universal Credit are far more likely to already be in energy debt.
"With bills rising and incomes falling, many families will find it hard to escape. For many, debt will be the inevitable consequence.
"It all adds to the growing case to rethink the Government's planned cut to Universal Credit and keep this lifeline which has been vital to keeping so many afloat."
GMB union general secretary Gary Smith said: "This is further evidence of the UK's increasingly shambolic energy and industrial policies, piling pressure on the poorest households while increasing our dependence on energy imports.
"That's a recipe for failure, not just for jobs and consumers, but also for the UK's security of supply and our net-zero ambitions.
"Ahead of Cop26, this should be the moment where the Government starts taking its responsibilities seriously in tackling the climate crisis."
Additional reporting by PA City Reporter Henry Saker-Clark