Gas and electricity bills rise by £60 on average to highest level in three years
24m agoIntroduction: UK households face 4% rise in energy bills to average of £1,723 from October
And Sebrina McCullough, director of external relations at free debt advice organisation Money Wellness, which helps 1,000 people a day, also called for targeted support for the most vulnerable, such as an energy social tariff.
This 3.6% rise might sound modest, but it will add around £60 to the typical household energy bill – effectively wiping out much of the saving from the VAT cut. For millions of households already under pressure, that extra £60 could be the difference between keeping up with their bills and falling behind. And with further rises potentially on the cards, we need targeted support for those who are most vulnerable. An energy social tariff, similar to the support available for water bills, could help protect households who simply can’t afford another increase.
This 3.6% rise might sound modest, but it will add around £60 to the typical household energy bill – effectively wiping out much of the saving from the VAT cut. For millions of households already under pressure, that extra £60 could be the difference between keeping up with their bills and falling behind.
And with further rises potentially on the cards, we need targeted support for those who are most vulnerable. An energy social tariff, similar to the support available for water bills, could help protect households who simply can’t afford another increase.
Matthew Cole, chief executive of Fuel Bank Foundation, a fuel poverty charity, warned that if war in the Middle East carries on, it is likely that there will be another rise in UK energy bills in January.
He called on Andy Burnham’s government to provide “targeted support” to those who need it.
While the price cap is increasing, it’s not increasing by as much as it would’ve done thanks to the government’s decision to remove VAT from bills for six months starting in October. However, the price cap also increased in July, so the compounded effect of back-to-back price cap increases will become very apparent, especially considering energy consumption drops over Summer, so most households wouldn’t have felt the immediate impact of the July increase. Worse still, if geopolitical circumstances, particularly those in the Middle East, carry on as they have been this year, then the likelihood is that there will be another price cap increase from January, meaning there will have been three increases on the bounce. Additionally, there’s an important group of households that aren’t protected by the price cap, and that’s people on heating oil. Prices for heating oil have increased by about 50% over the last half a year, and this is resulting in people filling up their tanks less than they normally would. As we head towards the colder months, it is absolutely crucial that households on heating oil are well stocked to avoid any potential issues during winter, especially as many of these households are in very rural locations and can be difficult to reach in bad weather. This will all be a huge cause of concern for many people, and it is for us too. Those most in need will need targeted support to cut energy costs, and this should be a top priority for the government as we head towards the colder months, even if they do seem a way off right now.
While the price cap is increasing, it’s not increasing by as much as it would’ve done thanks to the government’s decision to remove VAT from bills for six months starting in October. However, the price cap also increased in July, so the compounded effect of back-to-back price cap increases will become very apparent, especially considering energy consumption drops over Summer, so most households wouldn’t have felt the immediate impact of the July increase.
Worse still, if geopolitical circumstances, particularly those in the Middle East, carry on as they have been this year, then the likelihood is that there will be another price cap increase from January, meaning there will have been three increases on the bounce.
Additionally, there’s an important group of households that aren’t protected by the price cap, and that’s people on heating oil. Prices for heating oil have increased by about 50% over the last half a year, and this is resulting in people filling up their tanks less than they normally would. As we head towards the colder months, it is absolutely crucial that households on heating oil are well stocked to avoid any potential issues during winter, especially as many of these households are in very rural locations and can be difficult to reach in bad weather.
This will all be a huge cause of concern for many people, and it is for us too. Those most in need will need targeted support to cut energy costs, and this should be a top priority for the government as we head towards the colder months, even if they do seem a way off right now.
The 4% rise in the energy price cap is as expected.
Neil Kenward, Ofgem’s director general for markets, said:
High international gas prices are continuing to drive energy costs in the UK. We welcome the government’s intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter. Savings are available by choosing a fixed tariff, which are available at £100 or more below the October price cap, and many suppliers offer tariffs with cheaper electricity to smart meter customers for electricity consumed out of peak times. It’s also worth considering different payment methods, with prepayment customers paying the lowest price cap rates, and could save consumers an average of about £45 compared to direct debit.
High international gas prices are continuing to drive energy costs in the UK. We welcome the government’s intervention to remove VAT from electricity bills, without which customers would have faced even higher costs this winter.
Savings are available by choosing a fixed tariff, which are available at £100 or more below the October price cap, and many suppliers offer tariffs with cheaper electricity to smart meter customers for electricity consumed out of peak times. It’s also worth considering different payment methods, with prepayment customers paying the lowest price cap rates, and could save consumers an average of about £45 compared to direct debit.
This increase reflects higher wholesale gas prices as a result of the ongoing conflict in the Middle East, with volatile global gas markets remaining the dominant driver of price changes. However, prices remain 52% below the height of the energy crisis in 2022 when the government stepped in to cap bills at £2,500.
This increase reflects higher wholesale gas prices as a result of the ongoing conflict in the Middle East, with volatile global gas markets remaining the dominant driver of price changes.
However, prices remain 52% below the height of the energy crisis in 2022 when the government stepped in to cap bills at £2,500.
The regulator said 35% (around 11 million households) on a fixed tariff are unaffected by this increase.
The UK government’s decision to remove VAT from all domestic electricity bills is reflected in the latest energy price cap, it added.
While higher wholesale prices are pushing up both gas and electricity costs, the VAT reduction means electricity bills will remain broadly stable. As a result, most of the increase in the price cap is driven by higher gas costs, with gas bills rising by 8%, meaning that households which do not use gas will see a much smaller increase of less than 1%. Without the government’s intervention on VAT, this figure would have been around £45 higher. The VAT removal also benefits customers currently on fixed tariffs, with the discount automatically applied by suppliers.
While higher wholesale prices are pushing up both gas and electricity costs, the VAT reduction means electricity bills will remain broadly stable. As a result, most of the increase in the price cap is driven by higher gas costs, with gas bills rising by 8%, meaning that households which do not use gas will see a much smaller increase of less than 1%.
Without the government’s intervention on VAT, this figure would have been around £45 higher. The VAT removal also benefits customers currently on fixed tariffs, with the discount automatically applied by suppliers.
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UK households face a jump in energy bills to the highest in three years this winter, after soaring market prices triggered by the Iran war fed through to the government’s energy price cap.
Gas and electricity prices will rise by 4% from October under the new energy price cap set by the regulator Ofgem, months after climbing by 13% at the start of July. (Technically a 3.6% increase but Ofgem rounded it up.)
This means the the average annual energy bill will rise by £60 a year, or £5 a month, to £1,723.
Earlier this year, energy regulator Ofgem updated its estimate for typical domestic energy consumption, recognising that customers were using less electricity and gas due to the increase in prices.
That change meant that a typical annual bill under the price cap set from July-September was £1,663.
Wholesale energy prices have been on a rollercoaster during six months of war started by US-Israeli attacks on Iran in late February. Brent crude oil cost $72.80 a barrel before the war and is now at around $90 a barrel.
Miatta Fahnbulleh, the energy secretary, said on Tuesday that she understands why people are “worried and frustrated about energy bills” and that the government is “doing everything we can to make them more affordable”. Responding to public questions on the Reddit social media platform, she said:
As a start, we removed VAT from electricity bills to give everyone some breathing space. This is on top of the £150 we removed from energy bills in the budget in April.
There have been fresh calls on the government to help vulnerable households, and to fund extra measures by taxing the windfall profits made by energy companies and banks. Paul Nowak, the TUC general secretary, said “too many are skipping meals, dipping into savings and having to cut back on life’s essentials”.
Thomas Pugh, chief economist at the tax and consulting firm RSM UK said:
Higher wholesale gas prices will more than offset the impact of Andy Burnham’s move to remove VAT from electricity bills. That said, this will have relatively little impact on headline inflation. Ofgem’s price cap is based on typical use for dual-fuel households, but some households will only use electricity, where prices will probably fall, and in turn electricity has a much bigger weight within the consumer prices basket basket. In any case, we still expect inflation to continue to rise over the coming months from 2.9% to a peak of 3.4% in November as food inflation rebounds due to higher fertiliser prices and any impact of El Niño while surveys point to a pickup in core goods inflation in the coming months. Further ahead, the risks to utility bills lie to the upside. European natural gas storage is at its ten-year minimum which could prompt prices to surge in the coming months as countries scramble to ensure they have enough gas for the winter. That would push household bills much higher in January, keeping inflation sticky in 2027.
Higher wholesale gas prices will more than offset the impact of Andy Burnham’s move to remove VAT from electricity bills.
That said, this will have relatively little impact on headline inflation. Ofgem’s price cap is based on typical use for dual-fuel households, but some households will only use electricity, where prices will probably fall, and in turn electricity has a much bigger weight within the consumer prices basket basket.
In any case, we still expect inflation to continue to rise over the coming months from 2.9% to a peak of 3.4% in November as food inflation rebounds due to higher fertiliser prices and any impact of El Niño while surveys point to a pickup in core goods inflation in the coming months.
Further ahead, the risks to utility bills lie to the upside. European natural gas storage is at its ten-year minimum which could prompt prices to surge in the coming months as countries scramble to ensure they have enough gas for the winter. That would push household bills much higher in January, keeping inflation sticky in 2027.
Asian stocks rose again while oil prices and government bond yields fell on hopes that the strait of Hormuz could reopen soon, with markets braced for results from the US AI company Nvidia.
Iran said it has restarted talks with Oman to manage the key waterway. Five ships transited the strait on Tuesday, well below-the 10-day average, according to shipping data.
Brent crude is down for a third day, trading 1.7% lower at $87.07 a barrel.
Japan’s Nikkei and Hong Kong’s Hang Seng both rose about 0.7% while South Korea’s Kospi jumped 1.3%.
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