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What is the energy cap and why are energy bills so high? What is the energy cap and why are energy prices going up?
(2 days later)
A typical UK household could be facing an annual energy bill of about £2,800 from this autumn, the boss of the UK's energy regulator has warned. All UK households will receive a £400 discount on their fuel bills in October.
Ofgem chief executive Jonathan Brearley told MPsthat the energy price cap - currently at £1,971 - could reach this new level in October due to continued volatility in the gas market. The government announced the plan as part of a £15bn package of measures to help with steep rises in energy costs.
His comments come a few days after the boss of one of the UK's biggest energy suppliers warned that up to 40% of customers could be in fuel poverty by October. It will be partly funded by a temporary 25% tax on the profits of oil and gas companies.
What's happened to fuel bills? What's been announced?
Bills rose for millions of families in April this year because of an increase in the energy price cap, which is the maximum price that suppliers in England, Wales and Scotland can charge households. Chancellor Rishi Sunak told MPs one-off payments will be made to the most vulnerable members of society:
This meant an average increase of £693 for about 18 million households on standard tariffs - and £708 for 4.5 million prepayment customers. people on the lowest incomes who receive help through the welfare system will get £650, to be paid directly into their bank account in two instalments
Cost of living: What are Rishi Sunak's options? pensioner households who receive the winter fuel payment will get £300
disabled people will receive £150 (plus the £650 payment if they also qualify for that)
All households in England, Wales and Scotland will also be given a one-off discount of £400 on their fuel bills in October. This replaces a previous plan to take £200 off bills, which would have had to be repaid over five years.
So in theory, a low-income pensioner who has a disability could get a £1,500 package this winter.
The government says it will deliver equivalent support to people in Northern Ireland, which has a separate energy market.
UK households to get energy bill discounts of £400
How would a windfall tax on energy firms work?How would a windfall tax on energy firms work?
The energy cap will be reviewed again in October, and Ofgem's Mr Brearley has now given the clearest indication yet that another huge hike is on the cards. How fast are energy bills rising?
While Mr Brearley said that Ofgem was only part way through reviewing prices ahead of the next change, he said: "We are expecting a price cap in October in the region of £2,800." The maximum price which suppliers can charge customers in England, Scotland and Wales is called the energy price cap.
Fuel poverty means a household spends a high proportion of its income on energy bills. At the beginning of April, the price cap rose from £1,277 to £1,971 per year (for pre-payment customers it increased from £1,309 to £2,017).
Michael Lewis, the chief executive of E.On, said about one in eight of his company's customers were already struggling to pay their bills, even before the weather turns colder. The chief executive of the UK energy watchdog, Ofgem, has said that the energy price cap could rise to about £2,800 from October, when it is next reviewed.
There has been a similar warning from Keith Anderson, the chief executive of Scottish Power. Why is the energy price cap rising so much?
Why has the energy price cap risen so much? The energy price cap is based on the wholesale cost of gas and electricity - in other words, the price that energy suppliers pay producers.
The wholesale price of gas - the price that UK fuel companies pay gas suppliers - has risen sharply over the past year, even before the war in Ukraine. This has been rising sharply over the past year, firstly, because the global demand for gas increased very quickly after the pandemic eased, and secondly because the war in Ukraine has threatened supplies from Russia.
However, because the cap is only adjusted every six months, the companies were only able to pass these price rises on to customers last month. The price cap is designed to protect consumers from short-term changes in prices - currently it is only adjusted every six months (although Ofgem now wants to reduce this to three months).
The cap means that energy suppliers were not able to pass higher costs on to customers for several months. A number of companies went out of business as a result, and most suppliers stopped offering cheap deals to attract new customers.
The price cap doesn't apply in Northern Ireland, but households there are also seeing bills rise.The price cap doesn't apply in Northern Ireland, but households there are also seeing bills rise.
Energy firms ordered to explain direct debit hikes What's been the effect on customers?
What help is available? There have been warnings that UK households are facing a "cost of living catastrophe".
Households in England are being given a £150 council tax rebate to cope with the rise in fuel prices, if their homes are in bands A-D. Similar schemes are in place in Wales and Scotland. The cost of fuel is one of the main factors which has driven the UK inflation rate up to 9% - its highest for 40 years.
Why are prices rising so quickly?
Four things that are going up in price and why
There have also been several warnings that many households face what's called fuel poverty - this is when a household has to spend a high proportion of its income on energy bills.
The chief executive E.On, one of the UK's biggest energy suppliers, warned recently that up to 40% of customers could be in fuel poverty by the autumn.
Michael Lewis said that about one in eight of the company's customers were already struggling to pay their bills, even before last winter.
What other help is available?
The government also announced that it will double the Household Support Fund to £500m. This money is given to local authorities in England to support vulnerable families.
Households in England have already been given a £150 council tax rebate to cope with the rise in fuel prices, if their homes are in bands A-D. Similar schemes are in place in Wales and Scotland.
English councils also have access to a "discretionary fund" for extra payments, including to people living in other council tax bands.English councils also have access to a "discretionary fund" for extra payments, including to people living in other council tax bands.
In Northern Ireland, where there is no council tax system, the government has been given money to make payments, but political uncertainty has meant the cash hasn't yet been released.In Northern Ireland, where there is no council tax system, the government has been given money to make payments, but political uncertainty has meant the cash hasn't yet been released.
Confusion over council tax rebate timingConfusion over council tax rebate timing
Poorest could miss out on £150 council tax rebatePoorest could miss out on £150 council tax rebate
Under a separate scheme, in October, customers in England, Scotland and Wales will receive a £200 rebate on their energy bills which they will have to repay at £40 a year for five years, from April 2023.
Eligibility is also being expanded for the Warm Home Discount, which offers low income households a £150 one-off annual discount on their electricity bill between October and March.Eligibility is also being expanded for the Warm Home Discount, which offers low income households a £150 one-off annual discount on their electricity bill between October and March.
All the big energy firms have hardship funds, and customers can also get advice from organisations such as Citizens Advice, Turn2Us or the StepChange debt charity.All the big energy firms have hardship funds, and customers can also get advice from organisations such as Citizens Advice, Turn2Us or the StepChange debt charity.
Is more help on the way?
Political pressure has been growing for the government to introduce a windfall tax on the energy companies, to help raise money to assist hard-pressed households.
Labour, the Liberal Democrats and the SNP all back the measure, and while the government has so far resisted introducing such a tax it has not ruled it out.
Prime Minister Boris Johnson has said he is "not attracted intrinsically to new taxes", he has also said that "no option is off the table" to tackle rising living costs.
How do energy prices affect the cost of living?
The Resolution Foundation think tank has warned that UK households are facing a "cost of living catastrophe".
Prices are rising by 9% a year in the UK - the highest rate for 40 years - partly as a result of rising fuel and food costs. A National Insurance increase in April also left millions facing higher tax bills.
The Bank of England has put up interest rates to their highest level for 13 years to try to slow price rises, but has warned that inflation could be over 10% by the end of the year.
Why are prices rising so quickly?
Four things that are going up in price and why
What can I do to save on fuel costs?What can I do to save on fuel costs?
At the moment, fuel providers are not generally trying to tempt new customers with cheap offers, although a few firms, including British Gas and EDF, are offering new fixed price deals to some existing customers, which may be worth considering.At the moment, fuel providers are not generally trying to tempt new customers with cheap offers, although a few firms, including British Gas and EDF, are offering new fixed price deals to some existing customers, which may be worth considering.
People who are already on fixed deals are advised to stay put.People who are already on fixed deals are advised to stay put.
Otherwise, households are being encouraged to save money by improving energy efficiency.Otherwise, households are being encouraged to save money by improving energy efficiency.
The Energy Saving Trust says several small changes could help many people off-set some of the recent rises in energy costs.The Energy Saving Trust says several small changes could help many people off-set some of the recent rises in energy costs.