UK households to be hit by 80% rise in energy bills

The scale of the challenge facing the UK’s next prime minister was laid bare on Friday when the energy regulator said household power bills would surge 80 per cent with further rises expected next year.

Liz Truss or Rishi Sunak, the two candidates for the leadership of the Conservative party, will face a spiralling cost of living crisis and an energy crunch this winter that threatens to plunge millions of households into energy poverty.

Ofgem, the energy regulator, said on Friday that the typical household gas and electricity bill in Britain will rise from £1,971 to £3,549 a year from October.

Industry consultants now forecast energy bills could top £6,600 by the spring, more than five times higher than a year ago, amid the gas crisis sparked by Russia’s invasion of Ukraine. European prices hit the highest level on record on Friday.

The UK government has faced growing calls for the next prime minister, who is due to take office early next month, to provide additional support for households to stave off a deep recession.

With poorer households hit hardest by energy prices because gas and electricity account for a larger share of their expenditure, the Joseph Rowntree Foundation, a think-tank, said the finances of some single adults would be “wiped out by stratospheric energy bills that make up almost 120 per cent of their income after housing costs, leaving many destitute”.

Sandra Horsfield at Investec said the rise would knock 2.7 per cent from household disposable income. “This is a huge figure,” she said.

Truss and Sunak have been warned the crisis could extend for several years.

Jonathan Brearley, chief executive of Ofgem, said £15bn of government support that was announced in May, which will provide £400 to every household and more to those on benefits, would no longer be enough. In May, the price cap — the maximum amount set by the regulator for typical household energy use — was forecast to reach about £2,800 a year by October.

“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,” Brearley said. “The response will need to match the scale of the crisis we have before us.”

The business department said “additional support . . . can be delivered as quickly as possible when the new prime minister is in place”.

Chancellor Nadhim Zahawi, who was appointed by outgoing prime minister Boris Johnson last month, acknowledged the increase would cause “stress and anxiety for many people”.

Truss, the favourite to be the next prime minister, said she would “immediately take action . . . by cutting taxes and suspending green energy tariffs”.

Her allies said “it would not be right” for Truss to set out detailed plans before she was elected prime minister but pledged that she would make energy affordable for households.

Two senior Tories said Truss had been pitched ideas for boosting universal credit benefits, including new proposals from the Centre for Social Justice think-tank for a significant uplift plus an increase in the work allowances for individuals.

One senior MP said the plan would ensure the poorest received the most help.

Rachel Reeves, the shadow chancellor, said the latest price cap figures would “strike fear in the heart of many families”, adding that the public deserved a government that could “meet the scale of this national emergency”.

Labour has said it would cap bills below £2,000. It has suggested raising funding for such action by tightening discounts for oil and gas companies in the windfall tax that Sunak introduced in spring.

Cornwall Insight, an energy consultancy, said on Friday that its latest forecasts showed an expected increase to £5,386.71 for the first quarter of next year. The cap will next be adjusted in January, since Ofgem now carries out reviews every three months rather than six.

By the second quarter of next year the price cap is expected to reach £6,616.37 before easing slightly to below £6,000 later next year.

“Today should be seen as a wake-up call to policymakers that short-term thinking and triage of the energy system is not enough,” the consultancy said.

The government is considering several proposals including one from Scottish Power, one of the country’s largest energy retailers, which could involve price cuts for the majority of households, though no decision has been made.

The Scottish Power proposal is forecast to require funding of at least £100bn over the next two years, with costs spread over household bills for the next 10 to 15 years, absorbed into general taxation, or a combination of the two. That £100bn figure could rise, however, if wholesale energy costs keep going up.