Burnham's token VAT cut on electricity is wiped out with energy bills rising 4% in October - and warnings of another 9% hike in January

Households face heightened winter pressure from energy bills after regulator Ofgem revealed today that its price cap will increase by 4 per cent to a three-year high.

Ofgem said the cap will rise by £60 per year – or £5 per month – to £1,723 for the average household using both electricity and gas if this level was sustained for a year.

This increase reflected higher wholesale gas prices as a result of war in the Middle East, with volatile global markets remaining the dominant driver of price changes.

The ongoing heatwaves across Europe have added further pressure by increasing gas demand for power generation to meet air conditioning and cooling demand.

Richard Neudegg from Uswitch.com said: 'This is going to be another difficult winter. For price cap customers, gas costs will be almost 27 per cent higher than the same period last year, with the increase hitting just as the heating is due to go on.

'The Middle East conflict continues to impact wholesale gas prices, and ongoing supply challenges are set to hammer household bills as winter demand looms.

'Over half of households say they are already worried about paying for heating this winter. And now, those on standard tariffs may face a double blow on bills, with suppliers already pointing to another rise in January.

'The government's electricity VAT cut, on top of the earlier removal of certain levies on bills, has meant this cap level isn't as high as it might have been. But these haven't been enough to hold off price cap hikes.'

Ofgem said the energy price cap will rise by £60 per year – or £5 per month (stock photo)

Experts at Cornwall Insight had predicted last week that a typical household would face an annual bill of £1,729, up from £1,663, based on Ofgem's updated definition of a typical consumer, which came into effect from July to reflect falling household energy use.

It said this would be the equivalent of £1,941 per year based on its previous calculations, up from £1,862 currently.

The firm also warned October's rise will likely be followed by another hefty increase in January. Cornwall is forecasting a 9 per cent jump on January 1, which would take the cap up another £149 to £1,872.

Craig Lowrey, principal consultant at Cornwall Insight, said: 'Households will see rising energy bills going into winter, with the risk that, unfortunately, January will bring even more hardship.

What is Ofgem's energy price cap and how does it work?

The energy price cap sets a maximum price that suppliers can charge customers in England, Scotland and Wales for each unit of gas and electricity they use.

It also sets a maximum daily standing charge – the cost of having your home connected to the grid.

The headline price cap figure provided by Ofgem indicates what a household using gas and electricity and paying by direct debit can expect to pay if their energy consumption is typical.

It is important to note that it does not limit a home's total bills because people still pay for the amount of energy they use – so if that is above the average they will pay more, and if it is below they will pay less.

Energy is regulated separately in Northern Ireland.

'What is frustrating is these rises, as we have seen time and time again, have very little to do with what is happening in Britain.'

He added: 'Where January bills land will depend on whether the situation in the Middle East calms down in the next couple of months.

'However, even if we saw an end to the conflict, lower stocks going into winter as demand increases mean falling bills in January is unlikely.'

Adam Scorer, chief executive of National Energy Action, added: 'Rising energy prices heading into winter will plunge people into despair and place millions at risk.'

He added: 'The rise in gas prices is especially concerning with over seven in ten fuel poor households heating their homes with gas.

'People will have to retread this dreadful and familiar path. They will be forced not to heat their foods, not to cook hot food, ration washing their clothes and going to bed at dusk.'

The increased October cap will remain in place for three months for households in England, Scotland and Wales.

It will come into force as people start to increase their energy usage further by using their heating more regularly, adding to bills.

Neil Kenward, Ofgem's director general for markets, said: 'High international gas prices are continuing to drive energy costs in the UK.

'We welcome the Government's intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter.

'Savings are available by choosing a fixed tariff, which are available at £100 or more below the October price cap, and many suppliers offer tariffs with cheaper electricity to smart meter customers for electricity consumed out of peak times.

'It's also worth considering different payment methods, with prepayment customers paying the lowest price cap rates, and could save consumers an average of about £45 compared to direct debit.'

Cornwall said the increase in October was less than otherwise expected because of the proposed removal of VAT from household electricity bills.

This policy would knock about £45 off the annual Ofgem price cap from October, Prime Minister Andy Burnham said after announcing the measure.

However, experts said the recent swing in global energy prices has more than offset the downward impact of the VAT policy.

Meanwhile trade association Energy UK has warned that customers could owe around £7billion in unpaid energy bills by the end of the year.

The latest data shows that more than three million customers are now in debt or arrears and the average amount owed is about £1,800, according to the group.

Energy UK's chief executive Dhara Vyas said more targeted support is still needed to help households facing further costs.

She said: 'Too many households continue to feel the strain of high energy bills.

'Instead of relying on stop-gap, ad hoc or emergency measures, we need a better, targeted and more permanent way to give people confidence that they'll get help when they most need it.

'The current arrangements fail to provide the help needed and work out more costly. Household energy prices are set to increase further for British households.'