The UK’s energy regulator, Ofgem, has warned that the energy price cap is expected to rise to £2,800 in October.
The price cap was already raised by £700 in April, meaning that the cap will have more than doubled over the course of 2022.
Ofgem also warned that 12 million households are expected to fall into fuel poverty if the cap increase goes ahead.
Fuel prices have drastically increased over the past several months after increased energy usage during the COVID pandemic, combined with low wind speed leaving European wind farms inactive, and inclement weather damaging fuel transportation infrastructure led to increased demand for fossil fuels. The price rise has been further compounded due to Russia’s invasion of Ukraine, creating uncertainty about oil and gas supply, as Russia is a major exporter of both fuels. Around 40% of the EU’s supply is imported from Russia.
While £2,800 is the current increase if things continue as they are, the cost of fuel still has the possibility of skyrocketing much further, or dropping considerably. This is dependent upon the war in Ukraine. If Russia decides to cut off oil and gas exports to the EU, as it has been posturing towards, then fuel and gas prices will soar yet higher, whereas if the war comes to an end fuel prices may come down to previous levels.
The government’s current plans to lessen the impact of the price cap increases are a £150 council tax rebate as part of the warm homes discount, which is also being expanded to cover more households, along with a £200 “discount” paid to households in October. The £200 discount has been repeatedly criticised by opposition parties as being a “loan, not a discount”, as it must be repaid over the course of 5 years.
Business Secretary Kwasi Kwarteng has indicated that a replacement for the green homes grant is currently being planned.
While Labour has previously pushed for a larger increase to the warm homes scheme, its main talking point, now backed by most parties in opposition (and notably less strongly opposed by Conservative MPs) is a windfall tax to be placed upon oil and gas companies, which have been reporting record profits over the past quarter. In response to the warning of Ofgem, Shadow Chancellor Rachel Reeves repeated Labour’s call for a windfall tax.
Meanwhile, Liberal Democrat leader Ed Davey criticised the government for being more focused on protecting Boris Johnson’s position against the fallout from Partygate than it is on the cost-of-living crisis.
A spokesperson for No. 10 acknowledged that the price cap rise is a “significant challenge” and said the government is “actively looking at what more could be done”.