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As you’re undoubtedly aware, as of April 2022, the UK’s energy price cap has risen drastically. The price cap is the maximum amount a utility company is able to charge a customer for the gas and electricity they use per year. In April, this cap rose by 54%, going from a maximum of £1,277 charged per year to an annual cost of £1,971. And it’s due to go up again in October!
This is understandably extremely concerning for a lot of people. So what caused this huge spike in the annual cap? According to Ofgem, the UK’s independent energy regulator, the increase in energy prices is due to a record rise in global gas prices over the first half of the year. In fact, the last 12 months has seen wholesale prices quadrupling.
The big question for most of us is what we can do about this rise in energy costs. Or is there nothing we can do, other than try not to consume as much energy? We’ve explored this topic in more detail below:
With such a huge increase in energy costs, it’s natural to wonder why this has happened. So why have global gas prices risen? There are two main reasons for the price cap rising so drastically. The first is the legacy of the COVID-19 pandemic – as restrictions were lifted, there was a much larger demand for gas. The second reason is linked to the war in Ukraine – the BBC has reported that this has threatened supplies from Russia.
In terms of the price cap, this is updated twice a year, and is determined by things like wholesale energy costs. The idea of the energy price cap is to prevent energy companies from making excessive profits from sales. Customers shouldn’t have to pay above what is considered to be a fair price for energy. In the case of the recent increase in the price cap, energy suppliers would not be able to afford to provide gas and electricity to their customers if prices had remained the same, as that would be less than what they paid for it.
When your bills go up, it generally makes sense to look for a cheaper deal. However, in the current economic climate, you’re unlikely to find a supplier that offers lower prices. No fixed deals will be under the energy price cap, so switching providers won’t help you cut your bills. In fact, it’s likely that your supplier’s standard default tariff rate, which will be set at the price cap advised by Ofgem, will be the cheapest available rate.
What this means is that the average UK household won’t pay more than £1,971 a year if they are on their gas and electricity provider’s standard variable, or default, tariff. Bear in mind though that if you’re on a prepayment tariff, the cap is set at £2,017.
If you are currently on a fixed-rate tariff, it’s likely that you’ll be paying less than the price cap. But once this fixed-rate comes to an end, you’ll be automatically moved to your provider’s default tariff, and be expected to pay much higher rates.
It’s also worth noting that the energy price cap is expected to rise again in October 2022. You may therefore wish to start reviewing what you’re paying for your energy just before this, and see if it’s time to switch providers. Ofgem has warned the British public that the energy price cap could rise to around £2,800 in October, which will be more than twice what it was before this recent increase.
As mentioned above, the rise of energy prices is something that is impacting the vast majority of us. The higher price cap has meant that the cost of living has gone up across the country. This will almost certainly result in households struggling to pay their bills, so what help can they expect to receive?
There are a few government schemes that lower earners in particular may be eligible for, when it comes to rising energy bills. The first of these is the Energy Bills Support Scheme, which all domestic energy customers in England, Scotland and Wales should qualify for. This scheme will mean that customers will get £400 off their energy bill from October 2022, including the £200 offered back in March. This money won’t need to be paid back, and in most cases will be credited to your energy account automatically.
Other support includes a one-off cost of living payment of £650, for anyone who is on means-tested benefits. This would be paid in two instalments, alongside an individual’s existing benefits. So if you’re in receipt of Universal Credit, Income Support, Child Tax Credit, Working Tax Credit, Pension Credit or income-related Jobseeker’s Allowance or Employment and Support Allowance, you will probably qualify for this one-off payment.
Pensioners who currently receive the winter fuel allowance should furthermore get an extra £300 as a cost of living payment. The payment won’t need to be applied for, and will be paid automatically into the person’s bank account. Anyone receiving disability benefits like Disability Living Allowance could also be entitled to an extra £150 due to the rise in energy prices, paid out in September 2022.
While students won’t be eligible for a special allowance, there is help available. You can speak to the housing association at your university, or an independent third party for advice. You may also wish to look into helpful tools that make paying your bills easier. For example, Huddle is a company that pays for all of your utilities for you, allowing you to pay the same amount every month.
There are lots of small things you can do to try and cut back on energy costs, which might make a big difference. Simple techniques like unplugging chargers and not leaving electrical items like your television on standby are a good place to start. You can also try using energy efficient products such as light bulbs.
And if you are concerned about your energy bills moving forward, it might be a good idea to speak to someone for advice. Organisations like the Citizens Advice Bureau, for example, can offer free, impartial advice, providing you with information about additional benefits you could be entitled to, or point you in the direction of other institutions that can help you.