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(Alliance News) - UK's energy regulator Ofgem on Friday said it will increase the annual energy price cap on default tariffs by 80%.
From October 1, energy suppliers in Great Britain can charge up to GBP3,549 per year for energy bills, up from the previous cap of GBP1,971.
In August 2021, Ofgem set the price cap at GBP1,277 from October 2021, meaning the cap has nearly tripled over a one-year period.
The cap for households on prepayment meter bills will rise by 79% to GBP3,608 from GBP2,017. In August 2021, Ofgem set that cap from October 2021 at GBP1,309.
Ofgem regulates energy prices for England, Scotland and Wales, while Utility Regulator sets the price cap in Northern Ireland.
The increase comes after a survey from pollster Ipsos and Sky News from August 22 to August 24 showed a third of UK households say they are already struggling to pay their energy bills, including 47% of households on an annual income of less than GBP20,000.
Ofgem said the increase reflects the "continued rise in global wholesale gas prices", which began to surge as the restrictions across the world eased from the Covid pandemic and have been driven higher to record levels by Russia "slowly switching off gas supplies to Europe".
"We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today's news will be very worrying for many," said Ofgem Chief Executive Officer Jonathan Brearley.
He added: "Ofgem has also today strengthened the rules around direct debits to ensure suppliers set them at the right level, meaning that customers only pay exactly what they need to. The changes will stop suppliers from building up excessive customer credit balances and using them in a risky way as working capital."
Brearley explained that some suppliers may begin charging higher direct debits before October 1, but that such an increase would only be spent on their energy supply and "customers can ask for their credit balance to be returned at any time."
Commenting on help from the government, he said: "The government support package is delivering help right now, but it's clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year. We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action.
"The response will need to match the scale of the crisis we have before us. With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this," Brearley said.
A new prime minister following a poll among most Conservative party members, either UK Foreign Secretary Liz Truss or former Chancellor Rishi Sunak, will be announced on Monday, September 5.
Truss, the favourite to win, pledged "immediate support" to ease the sting of spiralling energy bills in the UK. Truss acknowledged the strain is "clear" at the checkout and the petrol pump, but insisted that Britain will "get through these tough times" – vowing to ensure help is "on its way".
Regarding the profitability of energy firms, the UK regulator said: "Ofgem is tightly monitoring suppliers' performance in this area and has told all suppliers now is the time to step up their support for customers, especially those on low incomes or in a vulnerable situation."
On Thursday, Centrica PLC's British Gas said it would be donating 10% of its profit made during the energy crisis towards grants for customers who are under pressure from rising energy bills. British Gas generated a pretax profit of GBP98 million for the first half of 2022, meaning that the initial contribution to the British Gas Energy Support Fund should be GBP9.8 million.
However, British Gas said it will increase its contribution to GBP12 million, to ensure that there is enough available for the winter, when energy usage will be at its highest. From then on, British Gas will contribute 10% of its interim profit to the fund, which will provide customers with grants expected to average GBP750 per household.
Centrica shares opened up 0.4% higher at 81.80 pence each on Friday following Ofgem's announcement. Power utility SSE PLC shares were up 0.8% at 1,837.50p each.
By Tom Budszus; tombudszus@alliancenews.com
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