Ofgem, the UK’s energy regulator, has proposed new plans to update the energy price cap every three months, as opposed to every six months.
Though these proposals supposedly aim to curb the shock of price increases, there is concern from experts that this could end up hurting struggling households more than helping them.
The energy price cap is currently set by Ofgem every April and October to limit how much providers can charge households for their electricity usage. They use factors such as energy and distribution costs and market changes to calculate this amount, which is expressed as an average for the typical household.
In April, the cap jumped from £1,277 to £1,971, translating to an increase of hundreds of pounds a year for many consumers. The cap is expected to increase again in October by £1,530 to around £3,500. Read more about how the price cap works in our article What is the energy price cap?
Ofgem’s proposed changes would mean that the cap would change more frequently, in smaller increments. The thinking is that while increases would happen sooner, they would also happen more gradually, in theory allowing households to budget more effectively. It would also mean that customers could benefit more quickly were the cap to go down.
However, with prices expected to stay high for quite some time, for many the only real effect of the proposed changes would be bigger bills, sooner.
The news comes at a difficult time for many UK households, with record-setting energy bills and the increasing cost of living pushing many into financial precarity. Experts attribute the height of the current cap to rising wholesale prices and sanctions on Russia, one of the biggest international sellers of gas.
Jonathan Brearley, Chief Executive of Ofgem, defended the plan, saying: “The proposed change would mean the price cap is more reflective of current market prices and any price falls would be delivered more quickly to consumers.
“It would also help energy suppliers better predict how much energy they need to purchase for their customers, reducing the risk of further supplier failures, which ultimately pushes up costs for consumers.”
But many industry experts are more sceptical. Myron Jobson, Senior Personal Finance Analyst at Interactive Investor, said: “Staying on top of energy bills is becoming a daily battle for many. The recent increase in the energy price cap, which has added almost £700 a year to the average household’s bills, has pushed many finely crafted budgets to breaking point.
“Adjusting the cap more regularly in the current high and rising inflation environment means energy bills will go up more frequently, which could spell disaster for households already struggling to stay financially afloat. With the cost of seemingly everything else also on the up, more regular price rises will be a worry for many.”
Jobson added: “Those struggling to keep on top their energy bills needn’t suffer in silence – there is support out there. Energy companies have schemes to help people who are struggling to afford their bills.”
Read about how to get support if you’re struggling to pay your energy bills in our articles The energy bills crisis: what can you do about soaring costs? and What can you do if you can’t pay your energy bills? Our article on How to save money – 18 money saving tips may also be of some help.
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