Energy bills are set to rise further after Ofgem’s latest price cap increased typical annual household costs to £1,723, with a consultancy warning that bills could approach £2,000 early next year.
The new cap, which came into force on Thursday and runs until the end of the year, means households on standard variable dual-fuel tariffs paying by direct debit face an average increase of 3.6 per cent, up from £1,663.
The rise would have been higher without the Government’s temporary suspension of the five per cent VAT charge on household energy bills. The measure is due to remain in place until the end of March next year.
Energy bills could reach their highest level since 2022
Cornwall Insight has forecast a possible 16 per cent increase in household energy bills at the start of next year, even with the VAT suspension continuing.
If that prediction is correct, the typical annual bill would reach £1,999 – the highest level since 2022, when energy costs surged following Russia’s invasion of Ukraine.
The pressure on households is expected to intensify as colder weather increases demand for heating. Higher unit prices and standing charges will add to the cost for many families already facing wider financial pressures.
The latest figures are likely to increase scrutiny of Energy Secretary Ed Miliband. Before the 2024 election, he said household energy bills would fall by £300 by 2030 under Labour’s green prosperity plan.
When Labour entered government and Mr Miliband became Secretary of State for Energy Security and Net Zero, the price cap stood at £1,568. The current cap is £155, or 9.9 per cent, higher than that level, while Cornwall Insight’s forecast would put next year’s cap £431, or 27 per cent, above it.
Fixed-rate deals offer some protection
Households seeking to limit the impact of further increases could consider fixed-rate energy tariffs, although the benefits will depend on the unit prices offered and future movements in the cap.
A two-year fixed-rate deal can mean paying more for one fuel than the capped rate while paying less for another. If prices rise as forecast, customers who have secured lower fixed unit prices could see greater savings next year.
The Government may use the Budget to introduce measures aimed at reducing household energy costs, but support is expected to be targeted at lower-income households rather than offered universally.
A repeat of the 2022 energy support scheme, which reduced bills by £400 and cost £12 billion, is not considered affordable amid pressure on the public finances.
Households are also being advised to reduce consumption where possible, including by taking showers instead of baths, using washing machines and dishwashers at lower temperatures, and improving loft insulation.
