Monday, 5 Dec 2022

Ofgem price cap rise branded ‘historic’ as UK remains ‘on the hook’

Ofgem price cap rise is 'historic' says commentator

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The energy regulator, which controls the amount corporations can charge for energy usage, has announced an unprecedented rise in the price cap. From January, the annual cost of energy will rise to £4,279 under new guidelines issued by Ofgem. The decision comes as the wholesale price of gas and oil has soared, prompting the consumer cost of energy to spiral. The public, however, are set to be protected from the huge increase by the Conservative’s energy price guarantee, meaning the Government will be “on the hook” to energy giants.

Will Hodson, a co-founder of Look After My Bills, told GB News: “We’re in a historic position – historic because, even with the price protection, British billpayers have never paid so much for their energy.

“What’s even more historic is the Government is on the hook like never before for bills up and down the country.

“The Christmas lights on your neighbours house – the Government is paying for a portion of that.”

He added: “The most important thing the Government can do is have us all reduce our energy usage.”

Ofgem asserted there was no need for “immediate action” from consumers following the price cap rise as bill-payers will remain protected by the Government’s energy price guarantee.

The scheme was introduced under former prime minister Liz Truss and the Chancellor, Jeremy Hunt, has outlined plans to continue offering a level of support throughout 2023.

In the autumn budget announcement last week, it was revealed that the current energy price guarantee of £2,500 will remain in place until April next year, when the threshold will then be raised to £3,000.

Ofgem will announce the next quarterly price cap update on February 27 2023, when the limit could again be increased if wholesale prices continue to inflate.

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Discussing the Ofgem rise, Mr Hodson added: “For the time being it’s a menacing spectre beyond the glass of our regulated price. It can’t hurt you, yet. 

“It’s a clue as to just how much money the Government is having to pay to keep our prices affordable. 

“We’re paying about £2,500 for average usage. According to Ofgem, what energy companies will be charging the Government will be another 40 percent on top.

The Government’s energy price guarantee comes in addition to the energy bills support scheme announced by Rishi Sunak during his time as chancellor.

The scheme provides all households with a domestic electricity connection with a £400 discount on their energy bills, received through gradual discounts applied to the monthly electricity bills between October and March.

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While the Ofgem price cap increase will not immediately impact consumers thanks to the Government’s intervention, taxpayers will inevitably foot the bill as the Government is forced to cover additional payments to energy giants.

Industry experts have warned the anticipated £38 billion cost of the Government support could actually rise as the wholesale market continues to shift, placing pressure on the level of government borrowing.

Principal Consultant at Cornwall Insight Craig Lowrey warned: “The energy price guarantee will shield consumers from the January price cap of £4,279 announced by Ofgem today, however, the rise will be concerning to the Government, who will be shouldering the billions of pounds needed to compensate suppliers the difference.

“While the January price cap was locked in last week, the rise in wholesale market prices has led to an increase in our price cap predictions from April 2023 onwards. With these increases passed on to the Government through payments associated with the energy price guarantee, in just one week our estimate of the full cost of 18 months of the EPG has jumped from approximately £38 billion to £42 billion.”

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