‘Devastating’ price cap rise is part of ‘toxic combination’

Ofgem’s announcement that it is to increase the price cap has been described as being part of a “toxic combination” by a fuel poverty charity.

Following the regulator’s announcement this morning (6 August) a number of industry voices representing suppliers and consumer groups have published their thoughts.

Many have concerns about the impact the rise will have on customers who have already suffered financially due to the pandemic, while some have acknowledged Ofgem had little choice but to increase the tariffs due to the rise in wholesale gas prices.

Peter Smith, director of policy and advocacy at fuel poverty charity National Energy Action (NEA), said: “This is a devastating increase. Millions of household budgets are already stretched to the limit and this massive increase could not be coming at a worse time.

“As well as a significant rise in general inflation – driving up spending on other essentials such as food – the new cap level takes effect in October when millions of people will see a reduction in their incomes, as furlough winds down and the uplifts to Universal Credit are likely to be withdrawn.

“This toxic combination of higher prices, reduced incomes and leaky, inefficient housing, will lead to a further surge in utility debt and badly damage physical and mental health this winter.”

Ian Preston, head of household energy at the Centre for Sustainable Energy, said: “The energy advice sector will face a tsunami of demand from people needing support once furlough ends, benefits reduce and bills go up.

“This price increase on energy bills is hitting at the worst possible time; just before winter, when millions of people are already struggling to pay their bills and people are spending more time at home than ever due to the pandemic.

“Cold homes cause misery, ill-health and social exclusion. Many government and industry support programmes are due to end soon and people will struggle to survive. A warm home is a basic human right and it’s going to be a really tough winter unless we see action to maintain support for people in vulnerable circumstances.”

Meanwhile several energy suppliers have had their say on the news.

Simon Shaw, regulatory affairs officer at Good Energy, said the increase highlighted the need for an “honest conversation” about the UK’s reliance on fossil fuels.

He said: “Today’s news highlights the urgent need to reduce the UK’s dependency on fossil gas. With 85 per cent of UK homes still connected to the gas grid, it is beyond time to have an honest conversation about our reliance on fossil fuels. We need to protect consumers from future volatility, whilst also working towards the rapid decarbonisation of our homes and businesses.

“One of the key conclusions from our report ‘Renewable Nation’ is that clean electricity can form the backbone of the entire energy system. We need more renewable power, and rapid electrification of our heat and transport sectors now, in order to reduce our reliance on unstable international gas markets.”

Karin Sode, joint-chief executive of People’s Energy, said Ofgem had “little choice” but to increase the level of the cap considering the rise in wholesale energy prices, but added the timing of the rise will be “deeply troubling for many”.

She added: “At a time of strained household incomes, we are already facing a fuel poverty epidemic and now even more people are facing the prospect of struggling to pay their energy bills this winter.

“We welcome moves by colleagues in the energy industry to seek ways to help mitigate the effects of price rises, particularly for those least able to pay, and we look forward to working with them to identify solutions. Fuel poverty has no place in the UK in this day and age – it is on all of us to do our best to make it a thing of the past.”

A spokesperson for EDF said: “As Ofgem has explained, global prices for fossil fuels, especially gas, are rising at an unprecedented rate. Regrettably, customers of all energy suppliers, whether on standard variable tariffs or renewing fixed price deals, will at some point see the impact of this global trend.

“We know this will be worrying news for customers of all suppliers – we will be directing financial assistance to those most in need through a £1.9 million support fund, helping customers reduce their bills, manage their debt and even helping with costs for things like more energy efficient white goods.”

Justina Miltienyte, energy policy expert at Uswitch.com, said: “Come October, energy bills will be an eye-watering £235 more than they were just one year ago, following a hike of £96 back in April.

“This should be a real wake up call to consumers that the price cap will not protect them from skyrocketing bills.

“Unfortunately, the writing was on the wall for the cap to go up again, following the continued rise of wholesale prices this year. Prices collapsed in 2020 due to low demand during lockdown, but energy usage has dramatically bounced back.

“Households on standard variable tariffs have faced continued uncertainty over bills, with prices rising and falling as the price cap pendulum has swung to and fro every six months. But this time, it’s less of a pendulum and more of a pummelling.”

Additionally, speaking at a Utility Week webinar earlier this week ahead of today’s announcement, former Ofgem chief executive Dermot Nolan said he believed retail might be back on the political agenda following the price increases.

He said: “I said to Jonathan (Brearley) when I left that I almost envied his position because he had the chance to run Ofgem in a world where retail wasn’t the biggest issue. But given the price cap announcement in February and what might happen this Friday, retail might be back on the political agenda quite soon.

“That’s not good for the customers affected but it’s also not good in lots of other ways.”

Utility Week also spoke to Ofgem chief executive Jonathan Brearley, you can read his thoughts here.