Households in England, Wales, and Scotland are bracing for significant changes to their energy prices as the new year approaches. For consumers, debt has hit a record £4.4 billion. The energy regulator Ofgem is preparing to introduce new policies to relieve at least part of this economic stress. The next change to the energy price cap will be in January 2025, only covering people on variable tariffs.
The energy price cap, which caps average household energy bills, has doubled on the last few years. It caps the total price energy companies can charge for their service. In January 2022, regulators price regulated the maximum amount a typical household using a dual-fuel tariff should pay to £1,216. This set level was determined using average lifetime consumption patterns. The current cap is set to increase, from October to December 2023, to £1,755—a 2% surge. This rising tide of energy costs resulted in an all-time high price cap of £4,059 in January 2023.
Ofgem’s proposal will wipe out around £500 million of the debt that homes are expected to pay. This important initiative addresses the financial burden consumers face. It’s a relief for those struggling with overdue utility payments as home energy prices soar. Together as people deal with climbing economic shocks, the reassurance from Ofgem is a hugely significant step.
Dhara Vyas, chief executive of Energy UK, underscored how urgent it is to focus on these challenges.
“We know that far too many people are struggling to pay for the energy they need to use,” – Dhara Vyas, chief executive of Energy UK.
Nonprofit sector leaders warn that charities are headed for a reckoning. They describe an alarming increase in unpaid invoices and fees due to vendors. Millions of households are experiencing serious financial distress as they’re increasingly unable to afford their energy costs.
The Energy Price Guarantee relief came to households in the form of a cap on their bills at £2,380. This federal support lasted from October 2022 through June 2023. As this safeguard has expired, consumers are left with the worst of both worlds—significantly higher rates with no similar protections. The subsequent price cap is due to come into force at the start of January 2025. Households will need to find their footing amidst these shifting currents.
For households with distinct needs, the financial effect is vastly disproportionate. A one-bedroom flat / low-use house uses around 7,500 kWh of gas annually. It consumes about 1,800 kWh of electricity, resulting in an annual electricity bill of about £1,266. By comparison, a larger household of 4+ bedrooms uses an average of 17,000 kWh of gas and 4,100 kWh of electricity. This leads to annual financial barriers of around £2,470.
As consumers struggle with these increasing prices, specialists advise that anyone struggling to pay should reach out to their utility companies as soon as possible. Support measures can be through subsidies for more efficient appliances or in reforming tariff structures to better accommodate people’s individual needs. All of these proactive measures can go a long way in relieving the financial strain often caused by inflated energy costs.
Estimates of energy costs for households reflect price cap level projections due for September 2025. So scarce is modern-day energy that rising energy prices are a waking nightmare for so many working families. Ofgem’s proposals would provide this relief, and I hope it gets adopted soon.