It’s hard getting away from the news of energy increases, particularly the spike scheduled to happen in October. Last week, the bills regulator OFGEM (Office of Gas and Electricity Markets) announced that the price cap would be raised to an average of around £3549 per year. This rate would remain in place from 1st October to the 31st December, but then expected to rise even further in 2023.
This is an increase of 54% in April, and then 80% in October. This rise in energy bills will likely tip hundreds of thousands, if not millions, of people into poverty. With the cost-of-living crisis and the general cost of goods rising, a large number of the general public will not be able to afford the rise in bills.
We break down why the energy cap rise has happened, what it will mean for the general public, and what needs to be done to resurrect the situation and rescue people from going into poverty.
Why Is The Energy Price Cap So High?
The price cap, introduced in 2019, had the objective to stop millions of households on different variable tariffs from paying excessive amounts. This limits the price for each unit of gas and electricity consumed, whilst also setting a maximum daily standing charge (the price of having a home connected to the grid). The price cap is calculated using the wholesale energy prices.
From October, the cap is set to alter in January, April, July and October 2023 due to a change in how many times the energy price cap is updated annually. However, OFGEM also have the power to change the cap at whatever time period under ‘exceptional circumstances’.
To highlight the alarming changes to energy bills, find the table below outlining the price caps stretching back to before the pandemic began:
|Monthly Direct Debit||Prepayment Amount||Other Payment Amount|
What Needs To Be Done To Curb The Energy Price Cap?
The most obvious resolution to this matter would be for the government to intervene. Presently, there is the Energy Bill Support Scheme which provides all households with a domestic electricity connection in the UK with a £400 non-repayable discount on their energy bills this winter. This is predicted to help around 29 million households across Great Britain and will be administered by suppliers to pay out to consumers over 6 months, with payments starting from October 2022.
Much has been made about public ownership of energy, with nationalisation providing an option for the public and the economy to recover and grow.
This leads onto the call for renewable energy to be given a greater priority by the government. With climate change constantly knocking at the door, more needs to be done by the government to incentivise and make it easier for households and businesses to produce and access renewable energy.
What our Chief Sustainability Officer has to say…
Nordens’ Chief Sustainability Officer, Steven Brewer, believes, “Possibly the worst thing we can do now is completely ignore the rising energy costs. Whilst government intervention is needed, we can’t just sit around waiting to be saved either.”
“So, my advice would be to sit down one evening and devise a quick plan of action. For now, consider asking yourself four things; ‘Where can I make cut-backs to help offset rising energy cost?’, ‘Can I be more energy conscious in the day-to day?’, ‘Review my wants and needs when budgeting e.g. start with your essentials first’, ‘Can my essentials cost less?”
“In business and in life, you need to plan accordingly, no matter how severe the situation is.”
Get in touch
We hope this has outlined to you what the energy price cap is and how it will impact the UK public. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.