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Energy price cap set to rise to £2,800 in October Energy price cap: Typical energy bill set to rise £800 a year in October
(32 minutes later)
The boss of the UK's energy regulator warned the energy price cap is expected to rise to around £2,800 in October. A UK household's typical energy bill is set to rise by around £800 per year, the energy regulator has warned.
Jonathan Brearley told MPs that the price cap, which is currently at £1,971, will increase due to continued volatility in the gas market. Ofgem boss Jonathan Brearley said the energy price cap, which limits how much providers can raise prices, is expected to increase to £2,800 a year, due to continued volatility in gas prices.
He said the price rises were a "once in a generation event not seen since the oil crisis in the 1970s". The warning comes after a typical bill rose by an unprecedented £700 in April.
The Ofgem chief executive also warned that the number of people in fuel poverty could double. Mr Brearley said the price rises were a "once in a generation event not seen since the oil crisis in the 1970s".
Mr Brearley said 12 million households could be placed into fuel poverty if October's expected rise happens. The Ofgem boss also warned that the number of people in fuel poverty could double, with 12 million households set to fall into such circumstances if October's expected rise happens.
A household is considered to be in fuel poverty if it has to spend 10% or more of its disposable income on energy.A household is considered to be in fuel poverty if it has to spend 10% or more of its disposable income on energy.
Energy firms warn against extending windfall taxEnergy firms warn against extending windfall tax
The energy price cap is the maximum price per unit that suppliers can charge customers.The energy price cap is the maximum price per unit that suppliers can charge customers.
It has already risen sharply in April, meaning that homes using a typical amount of gas and electricity are now paying an extra £700 per year on average. It has already risen sharply in April, meaning that homes using a typical amount of gas and electricity are now paying an extra £700 per year on average, but the more energy a household uses, the higher their bill will be.
While Mr Brearley said that Ofgem was only part way through reviewing prices ahead of the next change due in October, he said: "We are expecting a price cap in October in the region of £2,800." While Mr Brearley said that Ofgem was only part way through reviewing prices ahead of the next kit change due in October, he said: "We are expecting a price cap in October in the region of £2,800."
He said that conditions in the global gas market had "worsened" following Russia's invasion of Ukraine, which has led to concerns of potential supply issues. It means the typical household bill could rise by £800 per year.
And Mr Brearley warned that the price cap could rise beyond £2,800 if Russia - one of the world's largest exporters of natural gas - decided to disrupt supplies. Mr Brearley said that conditions in the global gas market had "worsened" following Russia's invasion of Ukraine, which has led to concerns of potential supply issues.
He warned that the price cap could rise beyond £2,800 if Russia - one of the world's largest exporters of natural gas - decided to disrupt supplies.
"We are really managing between two versions of events," he said. "One where the price falls back down to where it was before, for example if there's peace in Ukraine, but one where prices could go even further if we were to see, for example, a disruptive interruption of gas from Russia.""We are really managing between two versions of events," he said. "One where the price falls back down to where it was before, for example if there's peace in Ukraine, but one where prices could go even further if we were to see, for example, a disruptive interruption of gas from Russia."
Europe is reliant on Russian gas and gets about 40% of its natural gas from Russia, so sudden supply cuts could have huge economic impact. Europe is reliant on Russian gas and gets about 40% of its natural gas from the country, so sudden supply cuts could have huge economic impact.
While the UK would not be directly impacted by supply disruption as it imports less than 5% of its gas from Russia, it is affected by prices rising in the global markets as demand in Europe increases.While the UK would not be directly impacted by supply disruption as it imports less than 5% of its gas from Russia, it is affected by prices rising in the global markets as demand in Europe increases.
"The price changes we have seen in the gas market are genuinely a once-in-a-generation event not seen since the oil crisis of the 1970s," Mr Brearley said."The price changes we have seen in the gas market are genuinely a once-in-a-generation event not seen since the oil crisis of the 1970s," Mr Brearley said.
But the Ofgem boss apologised for regulatory shortcomings and admitted had financial controls been in place sooner for suppliers, fewer firms would have gone bust due to being unprepared for the sharp rise in wholesale prices.But the Ofgem boss apologised for regulatory shortcomings and admitted had financial controls been in place sooner for suppliers, fewer firms would have gone bust due to being unprepared for the sharp rise in wholesale prices.
We are all getting used to bill shocks when it comes to paying for gas and electricity - but this could be the biggest of all. Regulators do not usually give such early indications of the costs to come, which makes the seriousness of the situation all the more obvious.
Some 23 million households have their domestic energy bill governed by the price cap. In April, they typically started paying £700 a year more. In October, according to Mr Brearley, it could be a further annual rise of £800.
The trouble is, the old way of tackling this is as a billpayer was to shop around for a better tariff. That option is no longer available. Analysts say the average price of the cheapest 10 fixed tariffs on the market is £3,685 a year - clearly a poor financial choice.
So that leaves people to budget and use savings as best they can, and leaves ministers under even greater pressure to offer more support, especially during the colder, darker, more expensive months ahead.
In response to Ofgem's price cap forecast, Downing Street acknowledged that energy prices were a "significant challenge".In response to Ofgem's price cap forecast, Downing Street acknowledged that energy prices were a "significant challenge".
The Prime Minister's official spokesman said some of the help from the government was "phased throughout the year".The Prime Minister's official spokesman said some of the help from the government was "phased throughout the year".
"Some of the support is designed to come in in October, £200 will be discounted from energy bills, the warm home discount will increase to £150 and be expanded to cover three million people, cold weather payments and winter fuel payments will be available again," he said."Some of the support is designed to come in in October, £200 will be discounted from energy bills, the warm home discount will increase to £150 and be expanded to cover three million people, cold weather payments and winter fuel payments will be available again," he said.
He added the government was also "actively looking at what more could be done in this space".He added the government was also "actively looking at what more could be done in this space".
Meanwhile, Labour's Shadow Chancellor Rachel Reeves questioned: "How many more alarm bells does the Chancellor need to hear before he acts?" Meanwhile, Labour's shadow chancellor Rachel Reeves questioned: "How many more alarm bells does the chancellor need to hear before he acts?
"The government have got to get a grip on this crisis and to protect families and our economy.""The government have got to get a grip on this crisis and to protect families and our economy."
Ms Reeves repeated her party's call for a windfall tax on oil and gas firms' profits to help lower bills for households.Ms Reeves repeated her party's call for a windfall tax on oil and gas firms' profits to help lower bills for households.
Recently, Shell reported a record £7bn profit in the first three months of this year while BP made £5bn, the highest for 10 years.Recently, Shell reported a record £7bn profit in the first three months of this year while BP made £5bn, the highest for 10 years.