Price cap to rise by 80% in October to £3,549

Ofgem has confirmed the price cap on default tariffs will rise by £1,578 – or 80% – from the beginning of October to £3,549 per year for a typical dual fuel customer.

The hike will affect 24 million households now protected by the cap after a huge increase in the proportion of customers on standard variable tariffs over the last year.

Soaring wholesale costs following Russia’s invasion of Ukraine account for the vast majority of the increase, rising by 131% to make up £2,491 of the new price cap level.

Ofgem said that due to their higher costs to serve, the cap will increase further still for those on standard credit, who pay by cash or cheque, and for the 4.5 million consumers on prepayment meters (PPM).

Standard credit customers will pay an extra £215, taking the cap to £3,764, while those on a PPM will see an additional increase of £59 to £3,608.

Price cap breakdown

Ofgem also confirmed on Friday morning (26 August) a series of decisions tightening up rules for suppliers.

This includes strengthening the requirements for suppliers to have sufficient control over the key assets they use to run their businesses, and extending both the market stabilisation charge and the ban on acquisition-only tariffs, meaning all tariffs must be available to existing as well as new customers.

It has additionally launched a review into the level of profit margin available under the price cap to “ensure that suppliers do not earn excessive profits and receive only a fair return for the services they provide to customers”.

Ofgem chief executive Jonathan Brearley said: “We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many.

“The price of energy has reached record levels driven by an aggressive economic act by the Russian state. They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap.

“The government support package is delivering help right now, but it’s clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year.

“We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action. The response will need to match the scale of the crisis we have before us. With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this.”

A spokesperson for the government said: “We know people are incredibly worried about rising energy bills, following unprecedented gas prices across the continent driven by global events, including Putin’s aggression in Ukraine and his weaponisation of energy in Europe.

“Direct support will continue to reach people’s pockets in the weeks and months ahead, targeted at those who need it most like low-income households, pensioners and those with disabilities. As part of our £37 billion package of help for households, one in four of all UK households will see £1,200 extra support, provided in instalments across the year, and everyone will receive a £400 discount on their energy bills over winter.

“The civil service is also making the appropriate preparations in order to ensure that any additional support or commitments on cost of living can be delivered as quickly as possible when the new prime minister is in place.”

Consumer protection will be discussed in more detail at Utility Week Forum this November. For more information and to book your place, see our website.