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04/02/2022

Energy price cap rise: What it means, and where to get help with gas and electricity bills

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Energy prices have been on the rise for months now in the UK, and it’s recently been announced that the energy price cap will be raised by as much as 54%. 

 

Energy prices have been on the rise for months now in the UK, and it’s recently been announced that the energy price cap will be raised by as much as 54%. 

That means your gas and electricity bills are about to go up. Considering many households are already struggling with the impact of the pandemic, this latest price hike risks leaving millions of people facing energy bills they simply can’t afford.

In this article we’ll explore the latest energy price hike, including what the energy price cap is, why it’s being increased, what this increase will do to your energy bills in real terms, and – most importantly – what help is available to people who might struggle to keep up with rising costs.

 

What is the energy price cap?

 

The UK energy price cap was introduced in January 2019 as a measure to protect UK citizens from high power prices. The UK government initially set the price cap at a level of £1245 per year for each household. 

The price cap represents the highest amount of money you will be expected to pay per year towards your energy costs at a given time, no matter who your supplier is. 

Even if your supplier goes out of business and you’re switched to a new one, the new supplier won’t legally be able to charge you more for your gas and electricity than the price cap recommends. 

 

Why is the energy price cap being increased?

 

Ofgem, the UK’s independent energy regulator, reviews the price cap twice per year and takes various factors into consideration when deciding whether it’s set at the correct level, including the overall price of gas and electricity and the stability or volatility of the global energy market. 

When Ofgem last reviewed the price cap last year, they decided that the cap should be raised from October 1st 2021 in order to account for soaring energy costs. Then this week, Ofgem confirmed that the energy price cap will be raised again in 2021, this time by 54%.

There are many reasons for the increase. Wholesale energy prices are up by 104%, while the UK is more dependent on gas than other developed nations – gas heats 85% of the homes in Britain. Many of these homes are poorly insulated, so it also takes more energy to heat the average UK home. 

Regardless of the reasons, this is the second major energy price hike in six months. Given that national insurance is about to go up, and inflation continues to soar, the latest cost increase will hit already struggling families hard. 

 

When will this change kick in?

 

Ofgem’s new cap for England, Wales, and Scotland will take effect in April, so your April energy bill is likely to be significantly higher than the one you received in March. 

The general cost of living also looks likely to rise further in the spring; The Bank of England has just announced that it will increase interest rates by 0.5% in order to help combat rising prices.

 

What will the price cap increase do to my energy bills?

 

Ofgem have announced that from April the energy price cap will be set at £1,971 – an increase of 54%. 

According to The Guardian, this means that the 22 million UK households who pay for their gas and electricity by direct debit will see their typical bill rise from around £1,277 to £1,971, the upper limit of the price cap. That’s an increase of just under £700 annually.

For people who use a prepayment meter, the increase will be even higher. Your annual bill is likely to rise to around £2,017, an increase of £708. 

 

Is there Government support to help me pay my energy bills?

 

The Chancellor, Rishi Sunak, has recently announced the Energy Bills Rebate scheme in a bid to help people cope with rising prices. 

Under the scheme, all domestic customers will receive a £200 government-financed discount from October, but they will then pay it back in five annual installments. 

English households in the lowest four council tax bands – 80% of the total – will also get a £150 rebate. Local authorities will get discretionary funding to help them support vulnerable and low-income households, and the devolved nations will receive equivalent support.

You can find out more with this Energy Bills Rebate Government fact sheet.  

 

Is it really a ‘Rebate’ if I have to pay it back?

 

No. While it may help you deal with your bills in the short-term, the name ‘Rebate’ is misleading. The Energy Bills Rebate isn’t actually a rebate. With a tax rebate, for example, you get money back because you’ve been overcharged. That money is then yours to keep. 

With the EBR, you’re not getting money to keep. You’re getting a loan, which you can then put towards your energy bills. But it’s important to remember that, as with any loan, you will eventually need to pay this money back. 

 

Where else can I get financial support for rising energy costs?

 

British Gas support fund

 

British Gas have recently launched The British Gas Energy Trust, which promises people as much as £750 towards their energy bills even if they’re not British Gas customers. 

There are two separate funds; one for existing British Gas customers, one for customers of other energy suppliers. As long as you provide evidence that you live in the UK and you’re looking to settle an existing energy debt, you could be eligible for between £250 and £750 in support. 

To find out more and apply for support, click here

 

Cold weather payment 

 

Cold weather payments are Government payments that help people on benefits to afford to heat their homes during the winter. 

Low income households can get a cold weather payment of up to £175 for every 7-day period of extremely cold weather between November 1st and March 31st each year. 

You can find out more about cold weather payments on the Government website, here

 

Warm home discount

 

Low income people also qualify for the warm home discount, a discount applied directly to your energy bill. 

Under the warm home discount scheme, you can get a one-off discount of up to £140 applied directly to your energy bill between October and March. 

For more information on the warm home discount, visit the Government website here.

 

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