Energy regulator Ofgem has said it is considering raising its energy price cap from April, meaning UK households may find themselves paying more for gas and electricity.
Ofgem’s decision was made to help energy suppliers who have been facing an increase in the number of unpaid bills due to the ongoing coronavirus pandemic. A significant number of people have become unemployed over the past months and have fallen into arrears on household bills. Energy bills, which typically increase in the winter, have been the first to succumb to non-repayment.
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In response, Ofgem is thinking of raising the energy price cap, currently set at £1,042 until the end of March 2021. It plans to raise the price cap by £21 per year. The £21 rise in the price cap is an estimate based on a household with typical energy usage, paying for both electricity and gas by direct debit. By contrast, price comparison website Uswitch says 12-month deals on energy can be had for as little as £821.40.
The plan to raise the energy price cap has been met with dismay from customers and certain smaller suppliers, who feel that the move is not in their best interests.
Greg Jackson from Octopus Energy, currently the sixth biggest energy provider in the UK, said the increase in the cap gives leeway to suppliers to charge customers excessive fees for energy usage.
"Legacy suppliers charge long-standing customers hundreds of pounds more than new customers," said Mr Jackson. "If they cared about customers, they could handle COVID debt by reducing this disparity, rather than exacerbating it by lobbying for a hike in the price cap."
One of Ofgem's most significant successes over the past years has been the introduction of the price cap, which has encouraged companies to become more efficient while saving customers billions of pounds. Undermining the price cap is likely to reverse this process.
The price cap helps around 11 million consumers currently on standard variable tariffs. Many of these customers have been reverted to expensive standard variable tariffs by default once their fixed-rate contracts end.
NGOs plan to lobby against the price cap rise because they know what it will mean for customers in the long run. Cat Hobbins from We Own It, an organisation that campaigns to nationalise energy supply, said, "These proposals from Ofgem are absolutely shocking. The idea that at a time when millions of people are struggling to pay their bills, the solution would be to charge people even more is farcical."
While Ofgem’s move arises from a concern for energy suppliers, most believe that their focus should remain on customers for the moment. The rise in the price cap will affect them negatively, and energy suppliers may eventually lose business as people will be unwilling to spend more on household energy.
Ofgem’s is set to publish a final decision in early February, following which any price cap update will take effect from April.