In Depth

Why energy prices are to rise for millions across UK

Households on default tariffs will pay extra £117 a year on average

Around 15 million UK households are facing hefty energy cost hikes after industry regulator Ofgem gave suppliers the go-ahead to increase bills by more than 10%.

The watchdog is lifting the £1,137 price cap for customers on default tariffs by £117 from 1 April. The new limit of £1,254 a year for a home with typical use will leave many consumers paying more for their electricity and gas than before the flagship energy cap policy took effect on 1 January, reports The Guardian.

Ofgem was tasked by Parliament to set a limit on energy charges last year, after MPs ruled that customers on default tariffs, including standard variable tariffs, were being overcharged. Prime Minister Theresa May called the tariffs a “rip-off”.

The cap has been calculated “using a formula that includes wholesale gas prices, energy suppliers network costs and costs of government policies, such as renewable power subsidies”, says Reuters.

Ofgem says it has had to hike the limit “because wholesale costs facing energy firms had increased by 17% and other costs had climbed, too”, The Guardian reports. 

The regulator has also announced a rise of £106 a year to £1,242 for a further four million households with prepayment meters.

According to Ofgem bosses, even with the newly announced hike, default tariff customers would be paying around £75 to £100 a year more, on average, for their energy had the cap not been introduced, reports The Independent.

But The Guardian points out that the increase “is on a par with the worst by the big six energy suppliers over the past two years, many of which the Government claimed were unjustified”.

Defending the decision, Ofgem boss Dermot Nolan said: “We can assure these customers that they remain protected from being overcharged for their energy and that these increases are only due to actual rises in energy costs, rather than excess charges from supplier profiteering.

“Alongside the price caps, we are continuing to work with government and the industry to deliver a more competitive, fairer and smarter energy market that works for all consumers.”

Despite those assurances, the move prompted immediate criticism.

Stephen Murray, energy expert at price comparison site MoneySuperMarket, said: “The cap was put in place to protect consumers from overpaying on their energy, but right now it’s doing anything but that.

“It’s only taken five weeks for it all to unravel, and households up and down the country will be scratching their heads in confusion and wondering how the claims of fair prices and £76 per year saving have disappeared, and so quickly.”

Richard Neudegg, head of regulation at uSwitch, added: “We are in a ridiculous situation where standard plans are likely to be higher in April than before the cap was introduced.”

Meanwhile, Minister of State for Energy and Clean Growth Claire Perry said that “with over 60 companies and more than 200 tariffs to choose from, consumers can always shop around for a cheaper deal”.

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