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Energy regulator Ofgem has announced an increase in the energy price cap from April – the second hike in six months. The energy price cap is a limit set on the amount energy suppliers can charge for an average fuel tariff. This increase is due to an unprecedented rise in the price of gas.
This is an increase of £693 to the price cap. This means from April, energy bills are likely to rise by a staggering 54%. Prepaid meter users are expected to be hit even harder, with a hike of £708 to the cap, resulting in annual average energy bills of £2,017.
These increased costs are significant and is likely to impact 22 million households, with millions falling into fuel poverty. Fuel poverty could leave millions of brits unable to heat or light their homes. So, what is being done to combat this?
Just today, Chancellor Rishi Sunak spoke in The House of Commons after increased pressure on the government to support the country through this difficult time. With the cost of living increasing day by day, the financial strain on the UK is at an all-time high. The latest price cap increase – the highest on record – is another notch in the public’s belt.
Sunak announced the government would in fact be giving financial support to those who need it most. Firstly, the government are going to try and spread these increased costs. Instead of raising energy bills by 54% from April in one foul swoop, these increases will be implemented gradually over the coming months. So far, we are unaware of how much this will add to our monthly bills for the next few months.
He has also announced that all domestic electricity consumers will receive a £200 discount on their electricity bills from October 2022. This, however, has been criticised by The Labour Party as a buy now, pay later scheme for electricity bills. This is because, unfortunately, this £200 discount is not simply a discount, but something customers will have to pay back. Customers will have to pay back £40 a year for the next 5 years. This will be added to their energy bills in equal instalments.
Another aid being given to the public is a council tax rebate. Households in council tax bands A to D will be given a £150 rebate in April to help ease the blow to people’s purse strings.
There will also be £150 million given to local authorities across the UK to help local councils support those who will be hardest hit and those who are particularly vulnerable. Lower income households are expected to be given much of this help, in an attempt to help ease the burden of increased living costs.
Sunak, however, has rejected calls to reduce VAT on energy bills, and says there will be fast and generous support to those who need it. He has also suggested a VAT cut would not happen as it would disproportionately favour the wealthier in society and would cause people to save just £90 on average. Hence, the £150 council tax rebate is a better option in the eyes of the government.
In a final blow today, the Bank of England has announced a 0.25% increase in interest rates, bringing the total rate to 0.5%. Bank of England governor Andrew Bailey has stressed the interest rate move is part of an attempt to curb a rapid rise in the cost of living, explaining it was “necessary because it is unlikely that inflation will return to target without it”. Inflation is at the highest rate it has been for 30 years, at a staggering 5.4%.
“Energy prices are cyclical – particularly gas prices. They will come down at some point. I don’t know when but it could be in a year or two.
The bad news in the short-term is that we are likely to have to undergo another, smaller energy price rise in the Autumn, but at some point the wholesale gas prices will go down again which will make it cheaper for the energy providers to buy it in and will enable some price competition to come into the market. That way our bills will come down. Historically gas prices have gone up and down. We are in an ‘up’ part of the cycle right now.
So although this year is going to be tough financially, and probably next year too, it’s not going to be forever. Keep that in mind all the time.”