Energy price cap rise of 4% takes effect amid warnings of 16% new year increase

A 4% hike to Ofgem’s energy price cap takes effect from Thursday amid warnings household bills could soar by almost another £300 from January.

Campaigners have urged the Government to make plans now to support all households with energy costs this winter because of the severity of forecast bill hikes.

The stark warning comes as the latest 4% increase to the price cap coincided with experts at Cornwall Insight predicting it will rise by a further 16% to £1,999 a year on January 1, up by £276 on the level between October and December and the biggest rise since January 2023.

On Thursday, the bill for the average household in England, Scotland and Wales paying by direct debit for gas and electricity reached £1,723, up £5 a month or £60 a year if this level was sustained over 12 months.

More than four million homes who remain on a standard energy tariff are affected by the increase.

Cornwall said its latest predicted increase is driven by the escalating conflict in the Middle East, which has disrupted gas supplies to the UK and worldwide as the vital Strait of Hormuz shipping route has been effectively closed since the Iran war began in February.

In an effort to help households, the Government has temporarily removed the 5% VAT from electricity bills until March 31 next year to cut around £45 a year.

Prime Minister Andy Burnham said: “For many families, the energy bill is the one they dread the most. I don’t accept that it has to be this way, and I am determined to bring down costs for good.

“But I know people can’t wait. Families need breathing space now.

“That’s why, from today, VAT is gone from your electricity bill. And we’re going further, capping bus fares at £2 from January and cutting business rates for pubs, social clubs and live music venues.”

The End Fuel Poverty Coalition urged ministers to prepare an “emergency heat tariff” to cap the cost of heating this winter, with gas prices already rising 27% year on year.

Simon Francis, co-ordinator of the coalition, said: “With the number of households in fuel poverty set to soar again and at the most dangerous time of the year, the Chancellor has no choice but to act to provide increased targeted support to vulnerable households and plan to deliver wider universal help for people facing a sixth winter of high energy prices.

“If ministers do nothing, millions will spend this winter in cold, damp homes, unable to cook a hot meal. People will get ill. Some will die.

“Every one of those avoidable cases will be on this Chancellor’s watch.”

Energy UK’s deputy director of customer policy Ned Hammond said: “With wholesale gas prices at a three-year high and energy debt predicted to reach £7 billion by the end of 2026, it is clear that urgent action needs to be taken.

“The Government must provide additional targeted support to households most in need this winter as a stepping stone to implementing an enduring social discount scheme in future years.

“Alongside this, the Government needs to address how to bring down bills over the longer term. The UK’s continued reliance on international gas markets leaves both households and businesses exposed to global price volatility.

“We advise anyone struggling with bills to contact their supplier. There is a range of help available and it’s important suppliers understand your circumstances so they can offer support tailored to your needs.”