Ofgem’s Energy Price Cap Increases – Martin Lewis’ Advice and What Else You Need to Know
Households are now facing higher energy bills as winter approaches, with Ofgem’s energy price cap rising by an average of £149 per year. The cap has increased from £1,568 to £1,717, marking a 10% rise that will take effect from 1st October and remain at that level until the new year.
This added cost of £12 per month on average comes at a challenging time for bill payers already struggling to manage various expenses. Over the past two years, rampant inflation has pushed household expenditure to record levels, affecting everything from groceries to rents and mortgages.
While UK inflation dropped to the Bank of England’s 2% target in July for the first time in two years, it rose again to 2.2% in August. Despite this positive economic news, energy bills are set to increase, with customers expected to pay more per unit, especially as they use more energy to combat the cold weather.
The energy price cap set by Ofgem doesn’t represent the exact amount consumers will pay for their energy usage, nor does it establish the maximum cost. Instead, it reflects what an average household can anticipate paying for energy. With winter approaching and households likely to consume more than average, many can expect costs to exceed the 10% increase.
To monitor their energy usage, consumers may find it helpful to know their unit costs. Following the recent rise, the average unit charge for electricity will increase to 24.5p per kWh, up from 22.36p, while the gas unit charge will be 6.24p per kWh, up from 5.48p.
Ofgem’s Chief Executive, Jonathan Brearley, acknowledged the financial strain this rise in the price cap will have on many households. He recommended that those struggling to pay their bills ensure they access all entitled benefits, particularly pension credit, and reach out to their energy provider for further assistance.
The price cap is based on wholesale fuel rates, reflecting the costs incurred by providers for gas and electricity before selling to UK customers. Although these rates have decreased in recent months from £87.2 per MWh in May to £79.05 in July (now at £81.64), customers will still experience higher bills.
Finance expert Martin Lewis criticised the UK’s energy market as “perverse,” pointing out that the price cap mechanism is time-lagged, with each cap fixed for three months based on previous wholesale rates. This delay means that recent falls in wholesale rates are more likely to impact January’s price cap, predicted to decrease slightly to £1,697.
Lewis also called for a reevaluation of the government’s decision to limit Winter Fuel Payments to pensioners claiming Pension Credit, a move that has drawn criticism from fuel poverty and older age charities.
For the latest support and advice on managing rising energy bills, readers can refer to The Independent’s regularly updated guide.