Following the announcement made by Ofgem, Millions of households will see their energy bills rise by nearly £700 a year to an average of £1,971 after the price cap was increased by 54%.
What is the price cap?
The price cap is put in place by energy regulator Ofgem as a way to protect consumers from being overcharged for their energy. It sets a limit on the maximum amount suppliers can charge households for each unit of gas and electricity they use.
Due to the rise in wholesale gas prices, Ofgem have raised this price cap to stop more companies failing in the future but this will be effecting households astronomically.
Who gets hit the hardest?
The rise in the cap will most likely disproportionately affect low-income households. This is due to the fact that they spend a larger portion of their income on energy and are therefore more susceptible to price fluctuations.
Working-age single Brits on a low-income face the toughest rises by a significant margin. This demographic spends around 33% of their income (not including housing costs such as rent or mortgages) on energy bills. In contrast, a person in the same position on a middle income will spend just 5% of their income on energy.
According to NewsEconomics, Pensioners and working age adults without children on low incomes might see an increase of between £400 to £500, whereas low-income households with children or unemployed members might see bills rise between £500 to £700.
As a proportion of disposable income, certain types of families are likely to be particularly hard hit, with single parents seeing their bills rise 56% faster than the average.
Households with low energy efficiency is another concern, with individuals who live in the least energy efficient housing paying 30% more on average than those who live in well-insulated homes.
Without accounting for the effects of further government help taking effect in April, families in the poorest decile would lose slightly under 5% of their disposable income due to higher expenses.
Meter Type
Not only though will your households income or energy efficiency effect how badly you’re affected, it may depend on the type of meter you have too.
Charities including National Energy Action have warned that many of the country’s most vulnerable people have outdated prepayment energy metres in their houses, which are difficult to credit. The issue with this is they will likely be missing Rishi Sunak’s £200 reduction in October, if this credit cannot be applied.
These types of meters are prepayment meters, and can only be used once customers have topped up a key card at a shop or Post Office.
“Drawing on these numbers as an estimate, this could mean that between 200,000 and 250,000 households with prepayment meters could struggle to access the latest rebate,” said Peter Smith, the charity’s director of policy.
Students
According to Joe Jenkins in response to a report on whether Students will be cushioned from the price cap or not, he said:
“The biggest effect will be on shared house students who might be too young to pay much attention to their bill only to find it suddenly shooting up. If you have 4 people living together each using their own TV or Computer together with shared amenities it will become quite expensive.
For the students who choose to stay in all-inclusive halls/private student accommodation then it might fall to the company involved to take a hit on their bottom line. It is unlikely they will raise ‘rents’ (ie rent+bills) in the middle of semester.”
This poses the question whether additional support is needed for students or not.
Meanwhile in Norway, The Norwegian Government announced plans to provide support to students to cover their electricity costs.
Students at universities, university colleges, vocational schools and adult students at upper secondary level who are able to provide written evidence of their electricity costs will be able to apply for the additional loan of NOK3,000 (£251).
Ola Borten Moe, Minister of Research and Higher Education said: “Students, particularly in Southern Norway, have been facing high prices for electricity in autumn and winter. This is an additional expense that many people are finding challenging. This is why the government will be introducing measures aimed specifically at students.”