UK households’ typical energy bill could rise to £2,000 a year

Millions of British households could face a 56 per cent rise in their energy bills from April, pushing them towards the £2,000-a-year mark, according to one of the bleakest estimates yet of how much consumer prices will have to rise because of continued volatility in wholesale commodity markets.

Investec, the investment bank, has estimated that Britain’s energy price cap will have to be lifted to £1,995-a-year per household from April when the limit is next altered by Ofgem, the regulator, unless it or government comes up with “mitigating actions” to soften the blow.

The cap has been set at £1,277 per household since October, based on average consumption, but wholesale prices have continued to rise. UK wholesale gas prices are currently trading at a record 364p per therm — six times their level at the start of the year.

Investec analyst Martin Young said that even though wholesale price jumps had been “well trailed”, the sharp rise in consumer bills will “still come as a shock to many, with implications for discretionary spend, inflation, and fuel poverty”.

“An increase of this magnitude is likely to have political implications,” Young added.

Britain’s energy price cap protects more than 15m households that choose not to shop around for fixed price deals.

Before the recent crisis in wholesale energy prices, fixed-price tariffs were better value, although some suppliers are now offering fixed deals more than £1,500 above the current level of the cap to reflect record wholesale prices.

Ofgem changes the price cap twice a year, in April and October. It is due to announce the next increase in February.

Young warned that commodity costs make up the lion’s share of the projected rise from April but around £300 of his near £2,000-a-year estimate is down to other factors that could potentially be delayed or adjusted to reduce the burden on consumers.

These include value added tax, levies to support the growth of renewable energy, plus the costs of rescuing the customers of failed energy suppliers.

Energy companies and fuel poverty charities have in recent months pressed ministers to spread such costs over a longer period, or remove them altogether.

Energy UK, a trade body, has suggested that a government loan could help reduce April’s increase by spreading out the costs of rescuing the customers of failed suppliers.

Since the start of August, 26 energy suppliers have gone bust as the wholesale price surge has triggered the worst crisis in the sector for 20 years. Investec believes this alone could add £72 to bills per household in April, although other analysts have estimated the burden could be even higher.

EDF Energy, Britain’s fourth biggest supplier, has asked ministers to use an expected windfall from VAT on energy bills over the winter to provide additional financial support to vulnerable households.

Audrey Gallacher, director of retail at Energy UK, said: “Right now people have been insulated from those wholesale price rises but we are really, really worried about what happens in April.”

Investec’s price cap estimate is at least 5 per cent higher than other recent forecasts by organisations including Citizens Advice.

A government spokesperson said: “Throughout the unprecedented increase in global gas prices, our primary objective has been to protect consumers.”

They cited the £500m household support fund for those most in need, on top of schemes like the warm home discount, which is being increased to £150 and supports 2.7m households,

Additional reporting by Neil Hume