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UK energy prices to jump 54% as cost-of-living crisis deepens

© Shutterstockaberdeen oil cost living

UK domestic energy bills will jump 54% from April, dealing a dramatic blow to households already suffering a cost-of-living squeeze that’s only set to get worse.

Industry regulator Ofgem lifted its cap on bills to £1,971 ($2,670) in response to a surge in gas prices that has pushed dozens of utilities out of business. The cap limits what suppliers can charge customers.

“We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet,” said Jonathan Brearley, chief executive officer of Ofgem.

It adds pressure on households as inflation surges to the fastest in three decades and comes just hours before the Bank of England is set to add to homeowners’ pain with an interest-rate hike. Prime Minister Boris Johnson’s government is expected to respond Thursday with measures such as state-backed loans and tax rebates – but those moves will only go so far to cushion the impact.

“When international gas prices are this high, there is a need for government to act, as other governments already have, to make a real difference to bills and to protect the wider economy,” said Emma Pinchbeck, chief executive officer of Energy UK, an industry group.

Inflation is running at a 30-year high of 5.4%, and taxes are due to rise to fund health and social care. Johnson himself called attention to the plight of consumers, telling reporters on a trip to Essex that “we all understand the pressures that the cost of living crunch is putting on people.”

The centerpiece of the government’s support package likely will be a state-backed loan program, according to business and advisers who have spoken to Treasury officials. Utilities will be given cheap loans underwritten by the taxpayer to pass on an equivalent price cut to their customers.

An increase in the Warm Home Discount, a VAT cut in fuel bills, a council tax rebate and a higher uprating in benefits, including the state pension, also have been discussed.

The increase in the price cap is in line with analyst estimates, and there are expectations for further increases on the horizon. The next calculation in October could reach £2,450, according to Investec Bank.

About 22 million people are covered by the price cap, according to Ofgem. When it takes effect in April, it may push 1 in 10 people into “energy poverty,” meaning they may not be able to afford consistent heat and electricity.

The impact of skyrocketing wholesale costs has reverberated through the market forcing 25 suppliers out of business already. The cost of taking on the customers of failed rivals is added onto bills, adding further pressure to the squeeze. Part of the government’s rescue package is likely to include a fund that companies can use in the interim sparing consumers in the short-term.

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