In recent months, the energy price cap in the UK rose by 54%, taking the average household energy bill to £1,971 a year. Keith Anderson, the chief executive of ScottishPower, warns that there could be another increase, as high as additional £900 this winter. If that happened, this amount would increase to £2,900.
In a conversation with Sky News he said, ‘We need to act and we need to act quickly, because that will create huge amounts of pain and difficulty for a whole load of families across the whole of the UK.’
The solution he suggests is for families to receive £1,000 as an assistance in dealing with rising energy bills. But will the price cap definitely rise? And is implementing the new scheme feasible?
Future energy price cap increases
The energy price cap represents the maximum amount your supplier can charge you for your energy if your consumption is average. So, it does not mean that you will never pay more than that. If you consume more than an average user, you will be billed more. The energy price cap applies only to ‘customers who are on a standard variable tariff (SVT), which is usually a provider’s most expensive tariff. If you switched to a fixed deal over a year ago and that has come to an end, you will be moved to the standard tariff or “default tariff.” If you have not switched at all, you will remain on the SVT,’ Money Supermarket explains.
The energy price cap is set by Ofgem to prevent suppliers from overcharging energy customers for each unit of electricity and gas they use. If needed, changes to the energy price cap are implemented twice a year, in April and in October.
The recent 54% increase was triggered by the rise in wholesale costs of energy. And, as the energy crisis is still worsening and prices are still going up, it is likely that Ofgem will have to review the cap and raise it again.
Keith Anderson’s prognosis is not the only one assuming a significant rise in October.
‘The estimated price cap will go up to £2,600 in October 2022 for the average dual fuel bill. This is a predicted increase of over £600 from the current cap of £1,971, and would mean that energy prices would have doubled in just one year,’ Cornwall Insight writes.
Urgent action needed
There already are many families that struggle to pay their energy bills. Another increase of the energy price cap will push even more people into poverty, making it difficult for them to pay for their gas and electricity, as well as other basic goods.
Currently, households can receive £200 towards their energy bills, an amount that they do not have to repay. Unfortunately, if the energy price cap goes up again, this contribution will not be enough.
‘Mr Anderson said his proposed £1,000 discount could be paid back by all households through their energy bills over the next decade – or recovered through taxes, SkyNews reported.
The scheme that Keith Anderson suggested would be of great use to the most vulnerable but for it to be ready in October, it is necessary to agree on it in July. This is why it is important that policymakers start discussing the details and working on the proposal as soon as possible. The government, Ofgem, and various actors operating in the energy industry have to all work together to help customers survive the energy crisis and maintain good quality of life.